The Companies Act 2006 was designed to modernise British company law, making it ‘fit for purpose’ for the 21st century. This article deals with the main changes to company law and especially those affecting directors and shareholders. Under the Act the duties of directors are, for the first time, specifically defined. Directors can in certain circumstances be made liable for the debts or actions of the companies they direct and can be banned from acting as directors if they are grossly negligent in the performance of their duties. The Act defines their duties as being:
- (S 171) The duty to act within their powers (the duty to adhere to the company’s constitution);
- (S 172) The duty to promote the success of the company. There are six things a director must consider here, including consideration of the company’s employees, the long-term consequences of decisions, fairness to members (shareholders) and the impact of decisions on the community and environment ;
- (S 173) The duty to exercise independent judgment. This is not as restrictive as it may seem, but means not being the ‘yes man’ of the person responsible for his appointment. It does not prevent having an interest in transactions nor relying on the opinion of an expert where appropriate;
- (S 174) The duty to exercise reasonable skill, care and diligence. This duty has particular implications for non-executive directors, who can no longer afford to take a ‘hands-off’ approach;
- (S175) The duty to avoid conflicts of interest. This includes conflicts involving connected persons such as family members;
- (S176) The duty not to accept benefits from third parties; and
- (S177) The duty to declare an interest in transactions or arrangements. This includes the duty to declare interests of persons connected with the director.
