There are seven director’s duties namely:
1. Duty to act within powers;
2. Duty to promote the success of the company;
3. Duty to exercise independent judgement;
4. Duty to exercise reasonable care, skill and diligence;
5. Duty to avoid conflicts of interest;
6. Duty not to accept benefits from third parties;
7. Duty to declare interest in proposed transaction or arrangement with the company.
These duties are owed by directors to the company. Therefore subject to certain exceptions (considered below) only the company will be able to enforce breach of such duties against a director.
In certain circumstances shareholders may be able to bring a derivative action on the company's behalf. Such an action may be brought in respect of an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company. The effect of this provision is that a derivative claim may be brought in respect of an alleged breach of any of the general duties of directors considered above. There is no longer a requirement for the director to have benefited personally from the breach.
A shareholder will face a number of procedural hurdles in bringing an action and a court must refuse permission for a shareholder to bring a derivative claim in circumstances where it is satisfied that:
1. A person acting in accordance with the general duty to promote the success of the company would not seek to continue the claim;
2. The act or omission giving rise to the cause of action has been authorised or ratified by the company.
There will also be significant practical deterrents to bringing a derivative claim, including:
1. Costs will usually be awarded against unsuccessful claimants/ shareholders.
2. If a claim is successful, the relief will be awarded to the company - the claimant/ shareholder cannot benefit.
Remedies for breach of duties include:
1. An injunction.
2. Setting aside of the transaction, restitution and account of profits.
3. Restoration of company property held by the director.
4. Damages.
A breach of duty can also provide grounds (including gross misconduct) for the termination of an executive director's service contract. In addition it can also provide grounds for disqualification as a director under the Company Directors Disqualification Act 1986.
Where proceedings for negligence, default, breach of duty or breach of trust are brought against a director, the court may relieve him from liability if it considers both that:
1. He has acted honestly and reasonably.
2. Considering all the circumstances of the case, he ought fairly to be excused.
