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Summary Director Duties
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A concise but detailed set of revision notes regarding director duties, breaking down each duty under the Companies Act 2006. Exam-ready.
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DIRECTOR DUTIESDirectors duties consider the duties that director owe to the company. The courts have
adopted a strict approach towards the standard of care and skill expected of directors in the
performance of the management roles. A concern of both equity and common law courts was
to develop a corpus of rules designed to prevent directors from abusing their considerable
powers. The policy objective is based on prophylaxis and the result is a formidable body of
reported decisions in which the judges have developed the contours of director liability.
However, as directors are fiduciaries, much of the case law on their duties is founded from the
law of trusts and agency.
In addition to the courts, legislation has also imposed a range of duties, devised as a reactive
measure against specific abuses of power by directors, particularly in relation to fraudulent
asset stripping. The CA accommodates these provisions under Part 10 of the Act.
Historically, the duties of directors was set out in a mass of case law, spanning over 200 years,
and was based on the common law of negligence, equity and trusts. The result was an
inaccessible and out of date mass of judgements which was very unclear; in order to
understand their own duties, directors would need to undergo reading huge amounts of case
law or obtain costly legal advice.
It was therefore decided that the common law rulings would be codified into statutory
provisions, thereby providing an authoritative and accessible statement of director duties.
Accordingly, the common law has now been replaced by s171-177 CA 2006. However, the
common law rulings still remain very relevant today and should be considered alongside the
statutory duties.
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