This document summarizes a presentation on directors' duties under UK company law. It outlines the statutory and common law duties directors owe to their companies, including the duty to act within their powers, promote the success of the company, exercise independent judgment, use reasonable care and skill, avoid conflicts of interest, not accept benefits from third parties, and declare interests in proposed transactions. It notes some of the difficulties and potential conflicts local authority nominees face as directors. It provides examples of common conflicts and recommends measures directors can take like being familiar with their obligations, ensuring proper governance, and declaring any potential conflicts of interest.

1. Public sector breakfast club
July 2017, Exeter

2. Directors’ Duties
Lynne Rathbone

3. What are we going to look at?
• Types of directors’ duties
– Statutory code
– Common law & equitable principles
– Other duties
• Difficulties facing Local Authority nominees and
conflicts of interest
• Common conflicts
• Some practical measures you can take

4. Directors duties
• There are many duties owed by a director to his
appointing company:
– Statutory code (General Duties) Companies Act 2006
– Common law and equitable principles
– Other duties and responsibilities

5. Directors duties
• Chapter 2 Part 10 of the Companies Act 2006
– Codified certain common law and equitable duties of
directors
– Seven general duties
– Applies to all directors
– NOTE: company law does not refer to ‘executive’
and ‘non-executive’ directors – just ‘directors’!

6. Act within powers
• Duty to act within powers (s171)
– Always act in accordance with:
 the company’s constitution (articles of association),
 any resolutions/agreements affecting the constitution
and
 company law
• Don’t exceed your authority (you may be personally
liable for your actions if you do!)

7. Promote success of the company
• Duty to promote the success of the company (s172)
– Replaces fiduciary duty to act in good faith in the best
interests of the company
– Applies to all directors decisions, not just full Board
– Always exercise duties for benefit of members as a whole
(not just the member that appointed you…)
• But what is ‘success’?
– Depends on the company and its objects

8. Promote success of the company
• Must act in good faith to promote the success of the
company for benefit of all members, having regard to
the following list of factors:
– Likely long term impact of decision
– Interests of company’s employees
– Foster good relationships with supplier/customers
– Impact of operations on the community/environment
– maintain high standards of business conduct
– The need to act fairly between members

9. Some practical guidance
• Judgement must be ‘in good faith’ – there is no
absolute right or wrong approach
• Make sure all directors are aware of the duty
• Consider the list of factors carefully – but
remember its not an exhaustive list and they may
not all be relevant to every decision
• Keep clear record of decision-making process as
well as the decision (to evidence considerations)

10. Exercise independent judgement
• Duty to exercise independent judgement (s173)
– Don’t fetter your own discretion
• Must make independent decisions - council board
members
• Can you still take advice from experts?
• Can you still delegate?
– Yes so long as you exercise your own judgement in
deciding whether to take the advice you are given!

11. Reasonable care, skill & diligence
• Duty to exercise reasonable care skill & diligence (s174)
• Two tier test:
– ‘Objective’ = knowledge/skill reasonably expected of a
person carrying out the same functions
– ‘Subjective’ = knowledge/skill that you personally have
• Be diligent, careful and well informed about the
company’s affairs. If you have any special skills or
experience, you are expected to use them!

12. Avoid conflicts of interest
• Duty to avoid conflicts of interest (s175)
– Avoid situations where your interests conflict with
those of the company – if in doubt, disclose!
– Direct or indirect conflicts – need not be personally
involved to be conflicted
– Board can authorise conflict
• Make sure you know what “hat” you are wearing…
– LA officer? Company director? Member?

13. Not accept benefit from 3rd party
• Duty not to accept benefit from third parties (s176)
– Mirrors common law rule that a director should not
make a secret profit
– Whether it’s a conflict may depend on the context in
which its given (eg. corporate hospitality/gifts)
– Only relates to those benefits reasonably regarded
as likely to give rise to a conflict

14. Not to accept benefits…cont/
• No minimum threshold – and benefit need not be
financial
• Some suggestions:
• Amend constitution to set acceptable minimum threshold
• Keep register of benefits offered/received
• Develop clear policies that deal with benefits offered by
3rd parties
• Make sure all employees/contractors are aware of policy

15. Declare interest in proposed
transaction or arrangement
• Duty to declare interest in a proposed transaction
or arrangement (s177)
– declare extent and nature
– before transaction
– indirect and direct interests
• Only applies to an interest the director is aware of or
ought reasonably to be aware of

16. Other duties
• Many duties elsewhere as well as statutory duties – eg:
– General company law duties
 accounts and filing
 records and returns
 displaying correct company information
– Employment law
– Insolvency (wrongful/fraudulent trading)
– Acting whilst disqualified
– Misfeasance
– Corporate crimes

17. Difficulties facing LA nominee
• Nominee not representative
– when acting as a director you owe a duty of care to
the company, not to your appointing authority
…and the same applies in reverse…
• Remember which “hat” are you wearing
– member?
– director?
– LA officer?

18. Common types of conflict
• Direct financial gain or benefit - payments or
awards of contracts
• Indirect financial gain – employ spouse
• Non-financial gain – director also a service user
• Conflict of loyalties – friend employed by company

19. Common types of conflict
• Conflicts of duties - LA officer / Co director
• Confidential information - what can you share and
with whom?
To participate or not to participate, that is the
question… and the answer is, that will be a matter of
individual judgement for each director on each occasion,
depending on the specific circumstances…

20. What to do if you think you may
be conflicted?
• Check the Articles
• Speak to the company secretary
• Avoid situations where your interest conflict with
those of the company
• Remember what ‘hat’ you are wearing… and
• If in doubt, declare the potential conflict to the
Board and leave the meeting

21. Practical measures
• Be familiar with the constitution, your obligations and
powers
• Ensure proper governance procedures are put in place and
adhered to
• Regularly attending and preparing for Board meetings
• Contribute and raise any concerns at meetings
• Properly minute / document decisions
• Register any interests/conflicts

22. Questions?
Lynne Rathbone – Partner
T: 01392 458739
M: 07789943343
E: lynne.rathbone@brownejacobson.com

23. All information correct at time of production.
The information and opinions expressed within this document are no
substitute for full legal advice. It is for guidance only and illustrates the
law as at the published date. If in doubt, please telephone us on 0370 270
6000.
© Browne Jacobson LLP 2017 – The information contained within this
document is and shall remain the property of Browne Jacobson. This
document may not be reproduced without the prior consent of Browne
Jacobson.