Directors Duties

Question 1

Directors Duties (General & Specific)

Answer 1

General Duties (code of conduct) codified in Companies Act 2006

Specific Duties:
Companies act 2006 (obligation to prepare the directors’ report, accounting records, annual accounts, directors’ remuneration report, annual return)

Common law duties e.g. duty to consider creditors’ interest when insolvency is inevitable

Question 2

Codified General Duties

Answer 2

To act within powers (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 conflict of interest (s.175)
Not to accept benefits from third parties (s.176)
To declare interest in proposed transaction or arrangement (s.177)

Question 3

To act within powers (S.171)

2 Cases

Answer 3

Howard Smith Ltd v Ampol Petroleum Ltd (1974)

Bamford v Bamford (1969)

Question 4

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

4 Cases

Answer 4

Re Smith v Fawcett Ltd (1942)
JJ Harrison (Properties) Ltd v Harrison (2002)
Lonrho Ltd v Shell Petroleum Co Ltd (1980)
West Mercia Safetywear Ltd v Dodd (1988)

Question 5

To exercise independent judgement (S.173)

Answer 5

Boulting v Association of Cinematograph, Television and Allied Technicians (1963)

Question 6

To exercise reasonable care, skill and diligence (S.174)

Answer 6

Lexi Holdings plc (in administration) v Luqman (2009)

Question 7

To avoid conflict of interest (S.175)

2 Cases

Answer 7

Aberdeen Railway Co v Blaikie Brothers (1854)

Regal (Hastings) v Gulliver (1942)

Question 8

Not to accept benefits from third parties (S.176)

No Cases

Question 9

To declare interest in proposed transaction or arrangement (S.177)

Answer 9

Aberdeen Railway Co v Blaikie Brothers (1854)

Question 10

Specific Duties Codified in CA 2006

Answer 10

Obligation to prepare 
the directors’ report (s.415)
accounting records (s.386)
annual accounts (s.393)
directors’ remuneration report (s.420)
annual return (s.855)

Question 11

Overlapping Duties

Consequences of breach of duty

Answer 11

• he / she may be required to make good any loss suffered by the company (including accounting for any secret profits)
• any contract entered into between the company and a director may be rendered voidable
• any property taken by the director from the company can be recovered if it is still in his possession (it may be recovered from 3rd party unless that 3rd party required it for value and in good faith)

Question 12

S.178(2) of Companies Act 2006

Answer 12

S.178(2) specifically provides that the directors’ duties are enforceable in the same way as any other fiduciary duty owed to a company by its directors and remedies available may include:
• damages or compensation where the company has suffered loss
• restoration of the company’s property;
• an account of profits made by the director; and
• rescission of a contract where the director failed to disclose an interest.

Question 13

Disqualification of Directors

The Company Directors Disqualification Act (1986)

Question 14

Courts can disqualify an person from being (4 things)

Answer 14

• director
• insolvency practitioner or receiver
• manager of a company
• being concerned in the promotion, formation or management of any company

Question 15

Reasons for Disqualification (5 reasons)

Answer 15

• a person is convicted of a serious offence
• fraudulent trading / wrongful trading
• public interest
• breaches of competition law
• where a person has been persistently in default in relation to provisions of company legislations