Whilst directors are responsible for the general day-to-day management of a company’s affairs and are authorised to exercise powers on the behalf of the company, the extent of that authority will likely be constrained by the Companies Act 2006 as well as the articles of association of the company.

Directors must therefore be conscious of the fact that they will be personally subjected to these statutory duties. In addition to this, the company itself is also subject to statutory controls and the directors are the persons responsible for ensuring that the company complies with those statutory requirements. 

The Companies Act 2006 has codified certain common law and equitable duties for directors and sets out the general duties of directors, which are as follows: 

1. To act within powers in accordance with the company’s constitution and to use those powers only for the purposes for which they were conferred;
2. To promote the success of the company for the benefit of its members (i.e. shareholders);
3. To exercise independent judgement;
4. To exercise reasonable care, skill and diligence;
5. To avoid conflicts of interest;
6. Not to accept benefits from third parties; and
7. To declare any interest in any proposed transaction or arrangement.

These statutory duties should not be considered mutually exclusive and directors, for example and when considering whether a certain action is likely to promote the success of the company, will need to act with reasonable care, skill and diligence. Directors must also ensure that they are acting in accordance with the company’s memorandum and articles of association, even whereby a contrary course of action could be deemed to be promoting the success of the company.

Ordinarily, the company itself will need to take enforcement action against a director if there has been any breach of a duty (a decision to be determined by the board). A breach of a director’s duty typically gives the company a number of potential remedies including an injunction, damages or compensation.

In certain circumstances, an individual shareholder (or group of shareholders) can also bring a claim against a director for breach of duty on the behalf of the company in what is known as a derivative claim.

It must be borne in mind that a company director can be held personally liable in circumstances whereby losses incurred by the company are proven to be as the result of a poor board decision or a failure to act properly. Directors can also be held criminally accountable for acts, or lack thereof, of the company.

In certain circumstances where a director has acted in way which has breached a statutory duty, it may be possible that the breach can be ratified by resolution of the company’s shareholders. It may also be possible to seek a grant of relief from a court in circumstances whereby a director has acted honestly and reasonably.

If it is not possible to remediate the breach in the aforementioned way, the company may be able to offer assistance to the director by indemnifying them against any costs incurred in successfully defending a claim for breach of duties owed to the company (but this would be a decision for the board of directors, bearing in mind their own ongoing duties to the company). It may also be that the company has arranged insurance for the benefit of its directors (for example, Directors Liability Insurance).

The aforementioned statutory duties must also not be considered by directors in isolation as, in addition to these, directors are subjected to a wide range of regulatory and statutory measures including the Company Directors’ Disqualification Act 1986, the Health and Safety at Work etc Act 1974 and the Corporate Manslaughter and Corporate Homicide Act 2007. Directors should also bear in mind their obligations under the Insolvency Act 1986.

This article was first published in London Business Matters in August 2025.

Disclaimer: The information on the TV Edwards website is for general information only and reflects the position at the date of publication.