It is the directors of a company who are responsible for the day to day management of a company. The role and powers of the directors are generally defined in the company’s articles and where a director has one, the service contract.
The duties of a director are owed to the company and where insolvency is a threat, to the creditors of the company.
- The Companies Act 2006 imposes a number of duties which are:
- To promote the success of the company for the benefit of the shareholders
- To exercise independent judgement
- To avoid any conflict of interest
- To exercise reasonable care, skill and diligence
- Not to accept benefits from third parties
- To act in accordance with the company’s memorandum and articles of association
- To declare an interest in any proposed transaction or arrangement
- There are also a few common law duties which include: not to misapply company property, confidentiality, and not to cause the company to exceed its powers.
A director who exceeds their powers may incur personal liability. They may be released from this personal liability if the board subsequently ratifies their actions. An example of this would be where a director enters into a contract without the requisite power to do so. Potentially the director would be personally liable for the company’s requirements under that contract, unless the board ratify their decision to enter into the contract.
A director is not generally liable to third parties unless they have given a personal guarantee for the liabilities of the company. However, various statutes impose personal liability on directors, both civil and criminal. These include the Health and Safety at Work Act, the Bribery Act, the Fraud Act and the Corporate Manslaughter and Corporate Homicide Act.
There are insurance policies available for directors to protect against personal liability.