The Companies Act 2006 (CA 2006) has codified certain director’s duties. There are seven general duties.
The general duties apply to all the directors of a company and CA 2006 defines “Director” to include any person occupying the position of director, by whatever name called, and therefore includes de facto directors. There is presently some uncertainty regarding the application of directors' duties to shadow directors, and CA 2006 provides that the duties will only apply to shadow directors to the extent that the corresponding common law rules or equitable principles so apply. However the application of director’s duties to shadow directors is currently under review and this position may well change. The 2006 Act makes no distinction between executive and non-executive directors.
The duties are owed to the company and therefore only the company will be able to directly enforce them. However in certain circumstances shareholders may be able to bring a derivative action on the company's behalf.
Certain duties will continue to apply after a person ceases to be a director including:
a. aspects of the duty to avoid conflicts of interest will continue to apply as regards the exploitation of any property, information or opportunity of which he became aware at a time when he was a director; and
b. the duty not to accept benefits from third parties will continue to apply after a person ceases to be a director regarding things done or omitted by him before he ceased to be a director.
The duties include the following:
1. Duty to act within powers - A director must act in accordance with the company’s constitution and must only exercise his powers for their proper purpose.
2. Duty to promote the success of the company - a director must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its shareholders as a whole.
3. Duty to exercise independent judgment - directors must exercise their powers independently, without subordinating their powers to the will of others, whether by delegation or otherwise.
4. Duty to exercise reasonable care, skill and diligence - a director must exercise the care, skill and diligence which would be exercised by a reasonably diligent person.
5. Duty to avoid conflicts of interest - a director must avoid situations in which he has or can have a direct or indirect interest that conflicts with, or may conflict with, the company's interests. This applies, in particular, to the exploitation of property, information or opportunity, and whether or not the company could take advantage of the property, information or opportunity.
6. Duty not to accept benefits from third parties - directors must not accept any benefit (including a bribe) from a third party which is conferred because of his being a director or his doing or not doing anything as a director.
7. Duty to declare interest in proposed transaction or arrangement with the company - directors must declare to the other directors the nature and extent of any interest, direct or indirect, in a proposed transaction or arrangement with the company.
