Duties and powers of Directors

Question 1

What are the 7 Directors Duties

Answer 1

To act within their powers in accordance with the company’s constitution (and to use those powers for proper purposes) (s. 171)

To promote the success of the company (s. 172)

To exercise independent judgement (s. 173)
To exercise reasonable care, skill and diligence (s. 174)

To avoid conflicts of interest (s. 175)
Not to accept benefits from third parties (s. 176)

To declare any interest in proposed transactions or arrangements (s. 177)

Question 2

What is the purpose of directors’ and officers’ insurance

Answer 2

• The core purpose of a D&O policy is to provide financial protection for directors against the consequences of actual or alleged “wrongful acts” when acting in the scope of their duties. These include:
  – breach of trust
  – breach of duty
  – neglect
  – error
  – misleading statement
  – wrongful trading
• The D&O policy will pay for defence costs and financial losses.

Question 3

What action can be taken against Directors?

Answer 3

Insolvency Practitioner:

Fraudulent or wrongful trading

Shareholder can take action:

Derivative actions
in relation to an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust

Question 4

To exercise reasonable care, skill and diligence
(s174)

Answer 4

See Dorchester Finance Co.Ltd v Stebbing [1989]

a reasonably diligent person with—
the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company, and
the general knowledge, skill and experience that the director has.’

Differs for Exec Directors and NEDs

The courts in the UK are generally reluctant to condemn business decisions made by directors that appear, in hindsight, to show errors of judgement. Directors can exercise reasonable skill and care, but still make bad decisions.