Directors duties

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Director’s Duties

Directors’ Duties The Companies Act 2006 is reported to be the largest piece of legislation ever to be enacted. 1300 sections and 16 schedules make it approximately the size of telephone directory! Some parts are not yet enacted but it is intended to be fully implemented by October 2008 when it will replace the Companies Act 1985 in its entirety. Its intention is toconsolidate the current companies legislation, together with some of the common law rules and equitable principles including those relating to directors duties creating a more comprehensive code of company law providing clarity and consistency. Current Position Currently directors are subject to a variety of duties embodied in common law rules and equitable principles. The current position may besummarised as follows: Directors must act in a way that they believe to be in the interests of the Company and its shareholders, both current and future, as a whole. This duty is owed to the company itself and not to individual shareholders. In addition the CA 1985 specifies certain duties and guidelines, including that directors are to have regard to the interests of the company’s employees in generalas well as the interests of shareholders. However again this duty is not owed directly to employees. The commercial reality is that the manner in which directors currently uphold their duties varies widely, largely depending upon the nature of the issues in question, the company concerned and the understanding and knowledge of the individual directors of their duties and responsibilities. It hasbeen recognised that a number of directors are unaware of the extent of their duties as provided by common law. This is evidenced by the increasing number of directors disqualification proceedings, settled either by way of voluntary undertaking or by court order. However it is also acknowledged there are those directors who have the knowledge, experience and skills who understand the requirementsof their role as a director and their decision making reflects that understanding. What has been recognised by the government is a need to provide clarity of directors’ duties and responsibilities, not simply to the company and its shareholders but also to its customers, suppliers, the community and the environment. Thus the introduction of the Companies Act 2006 and the codification of director’sduties. Companies Act 2006 – Codification of Directors Duties. The CA2006 includes for the first time a statutory statement of directors’ duties at Part 10 of the Act. The duties form a “code of conduct” which sets out how a director is to behave. It also seeks to introduce a concept of enlightened shareholder value. This part of the CA 2006 is effective from 1 October 2007 with the exception ofthe provisions regarding conflicts of interest which will be effective as of 1 October 2008. The statement of duties does not cover all duties that a director may owe to the company – other duties are incorporated in the Act, such as the duty to deliver accounts, and some remain un-codified, such as the duty to consider creditors interest in times of threatened insolvency.

Director’s Duties
2The introduction of the statutory statement of a directors main fiduciary duties and his duty of care and skill follows the recommendation of The Law Commission and the Scottish Law Commission in their joint report “Company Directors: Regulating Conflicts of Interests and Formulating a Statement of Duties”. The intention behind the introduction of such a statement was to provide clarity as towhat is expected of directors and make the law more consistent, certain and accessible. The common law rules and equitable principles however do not simply fall by the wayside without any further regard. S170 CA2006 details the relationship between the statutory duties detailed within the act and the common law rules and equitable principles. The statutory duties are based on certain common law...