Who is a director?
Under s.250 of the Companies Act 2006 a director is defined as “any person occupying the position of director howsoever called”.
A person can therefore be a director without bearing the title.
The Companies Act makes no distinction between executive and non-executive directors. Non-executive directors are directors for all purposes of the legislation, and bear all the relevant responsibilities.
Private companies need only one director, but in practice most have at least two. Companies must maintain a register of directors and notify the Register of Companies of any changes within 14 days.
There are numerous statutory duties that apply to directors, namely:
- Duty to act within powers (s.171) i.e. a director must act in accordance with the Company’s constitution and must only exercise his powers for the proper purpose;
- Duty to promote the success of the Company (s.172);
- Duty to exercise independent judgment (s.173);
- Duty to exercise reasonable care, skill and diligence (s.174);
- Duty to avoid conflicts of interest (s.175);
- Duty not to accept benefits from third parties (s.176);
- Duty to declare interest in proposed transaction or arrangement with the Company (s.177).
Consequences of breach
The duties of directors under the general law are owed to the Company and not to its shareholders, so it is the Company (or its liquidator), that can sue.
In certain circumstances, the shareholders may be able to bring a derivative action on behalf of the Company.
Under s.178 of the Companies Act 2006, the consequences of a breach or threatened breach of a director’s duties are the same as would apply if the corresponding cannon law rule or equitable principle applied.
The remedy for a breach of s.174 (duty to exercise reasonable care, skill and diligence) will usually be damages.
Remedies for breaches of other general duties may include:
- An injunction;
- Setting aside of the transaction and account of profits;
- Restoration of company property held by the director;
- Termination of the director’s service contract.
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