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LPC - BLP MODULE - CONTROLS ON DIRECTORS (DISTINCTION)
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Notes on the controls imposed on directors of companies
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BLPControls on Directors.
Directors General Duties.
The directors of a company have duties imposed on them by law.
o These duties seek to hold the directors to account for the way in which they run the
company.
o They seek to protect the company by regulating the director’s behaviour.
o If any of the directors breaches any of these duties then he will incur liability and
action may be taken against him.
Before the CA 1006 directors were subject to duties which derived principally from equitable
principles but also from common law rules.
o The duties of directors therefore evolved through decisions of the courts.
o the courts have long held directors to be in a fiduciary relationship with their
company and to owe it fiduciary duties.
o The have considered directors to be analogous to trustees, namely, in a special
position of trust in relation to their company.
o The fiduciary duties imposed on directors therefore arose out of equitable
principles.
o Directors were also subject to the common law duty of skill and care.
The previous equitable and common law duties were codified and reformed in sections 171-
181 of the Act.
o Seven separate general duties are set out in sections 171 to 177.
o The new duties have replaced the previous duties – section 170(3).
o The new duties will be interpreted in accordance with the previous case law on
directors duties (section 170(4)).
Who owes the duties?
o The duties apply to all directors of the company.
o Director is defined by section 250(1).
o The duties apply to all directors, even shadow directors.
To whom are the duties owed?
o Directors owe their duties to the company – section 170(1).
Not to the shareholders, creditors or other directors.
This means that the company itself must take action against a director for
breach of these duties.
In limited cases the shareholders may bring a derivative action on behalf of
the company.
Duty to act within powers.
Section 171
General duty that is a codification of the fiduciary duty that a director must use his powers
for a proper purpose, and must act within the powers conferred by the company’s
memorandum and articles of association/
The duty will be breached if a director acts outside of the powers given in the articles.
(section 17).
Duty to promote the success of the company.
Most important duty
Section 172
Based primarily on the previous fiduciary duty to act in good faith in the best interests of the
company
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