In this practical session we explored the legal duties of directors and the difficulties which they may face. The session focussed on individuals who are directors for public sector companies, including their role, obligations and competing interests which may arise.

1. Jennifer Grigg & Sandra Wong
Breakfast Briefing:
Directors’ duties
26 February 2019

2. What are we going to look at?
 Types of directors’ duties
 Statutory code
 Other statutory duties
 Conflicts of interest
 Personal liability
 Reassurance and protection
 Practical measures

3. Mops and Mayonnaise Ltd

4. Types of duties
1. Statutory code of directors’ duties:
• Companies Act 2006 (ss171-177)
2. Directors’ fiduciary duties and
responsibilities
• Duty of confidentiality to the company; and
• Duty of undivided loyalty.
3. Other duties and responsibilities
• Tort
• Contract

5. Statutory Code of Directors’ Duties
7
duties
Act within
company’s
powers
Promote
success of
the
company
Exercise
independent
judgement
Exercise
reasonable
care, skill
and
diligence
Avoid
conflicts of
interest
Not accept
benefits
from third
parties
Declare
interests in
proposed
transactions
or
arrangements
with co
Chapter 2 Part 10 of the Companies
Act 2006
 codified certain common law and
equitable duties of directors
 seven general duties
 applies to all directors

6. Duty to act within powers (s171)
 Act in accordance with the
company’s constitution (e.g.
articles of association)
 Use powers only for purposes for
which you are given and within
the terms of such authority

7. Mops and Mayonnaise Ltd
An MM Director enters into a contract with a
maintained school to provide services, even though
the Articles specify that entering into a contract
requires the approval of the MM Board.
Is MM required to provide the services?
Slido: www.sli.do
Slido #: S880

8. Duty to promote the success of the company
(s172)
 Duty to promote the success of the company:
 replaces fiduciary duty to act in good faith in the best
interests of the company
 applies to all directors decisions, not just full Board
 take everything you think is relevant into account
 always exercise duties for benefit of members as a
whole (not just the member that appointed you…)
 But what is ‘success’?
 depends on the company and its objects

9. Promote success of the company
Must act in good faith to promote the success of the
company for benefit of all members, having regard
to:
• likely long term impact of decision
• interests of company’s employees
• foster good relationships with
supplier/customers
• impact of operations on the
community/environment
• maintain high standards of business
conduct
• the need to act fairly between members

10. • Judgement must be ‘in good faith’ – no absolute right or wrong approach
• Make sure all directors are aware of the duty
• Consider the list of factors carefully – but remember its not an exhaustive list and
they may not all be relevant to every decision
• Keep clear record of decision-making process as well as the decision (to evidence
considerations)
Some practical guidance

11. Mops and Mayonnaise Ltd
The Local Authority has asked the MM Directors
appointed by it to transfer funds from MM to the
Local Authority for the benefit of the Group.
What should such MM Directors do?
Slido: www.sli.do
Slido #: S880
What factors should the MM Directors take into
account in reaching their decision?

12. Duty to exercise independent judgement (s173)
 Exercise own judgement, independent of the view of the other board members
 Don’t fetter own discretion
 Can you still take advice from experts or judgement of others in areas where you’re
not an expert?
 Yes so long as you exercise your own
judgement in deciding whether to take the
advice you are given!
 Can you still delegate?
 Yes but check the articles and make sure
you supervise the delegate’s discharge of
the delegated function

13. Mops and Mayonnaise Ltd
MM has an opportunity to branch out and provide
catering services to a local business and increase
their profitability.
The proposed business is politically undesirable
and the Local Authority has asked the MM
Directors appointed by it to vote against a
business opportunity.
What should such MM Directors do?
Slido: www.sli.do
Slido #: S880

14. Duty to exercise reasonable care, skill and
diligence (s174)
• Two tier test:
o ‘Objective’ = knowledge/skill reasonably expected of a reasonably diligent
person carrying out the same functions
o ‘Subjective’ = knowledge/skill that you personally actually have
Be diligent, careful and well informed
about the Company’s affairs.
If you have any special skills or experience,
you are expected to use them!

15. Duty to avoid conflicts of interest (s175)
 Avoid situations where your interests conflict with those of the company – if in doubt,
disclose!
 Direct or indirect conflicts – need not be personally involved to be conflicted
although if the director cannot reasonably be expected (object test) to know that a
conflict has arisen, he won’t be conflicted
 Applies regardless of whether the company is able to
take advantage of the relevant property, opportunity
or information
 Board can usually authorise conflict
Check the articles.
Make sure you know what hat you are wearing…

16. Mops and Mayonnaise Ltd
An associated Academy Trust wants to buy
services from MM.
Can a Director of the Trust who is also a
Director of MM vote in favour of the MM
entering into the contract for services with
the Trust?
Slido: www.sli.do
Slido #: W732

17. Mops and Mayonnaise Ltd
An MM Director resigns from his directorship and
is subsequently appointed as a director of a
competing business.
Would the MM Director be in conflict if he uses
knowledge acquired during his directorship in
MM for the benefit of his new employer?
Slido: www.sli.do
Slido #: W732

18. Duty not to accept benefits from third parties
(s176)
• Be honest and remember that company’s property belongs to it and not to you or
its shareholders
• Mirrors common law rule that directors shouldn’t make secret profits
• Only relates to those benefits which could reasonably be regarded as likely to give
rise to a conflict of interest
• No minimum benefit - and benefit need not be financial
Some suggestions:
 amend constitution to set acceptable minimum threshold
 keep register of benefits offered/received
 develop clear policies that deal with benefits offered by 3rd parties
 make sure all employees/contractors are aware of policy

19. Duty to declare interest in proposed transaction
or arrangement (s177)
 Duty to declare to the other directors the nature and extent of any interest in a
proposed transaction or arrangement with the company
 The declaration must be made beforehand
 Only applies to the interest which the
director is aware of or ought reasonably to
be aware of
Conflicts: to participate or not to participate…will be
a matter of individual judgement for each director on
each occasion.

20. Other statutory duties…
 Declaration of interest in existing
transaction or arrangement (s182)
 General company law duties
 Not to act whilst disqualified as a
company director
 Bribery Act, competition law, GDPR,
H&S, environmental, manslaughter,
etc…
Insolvency
Wrongful
trading
Fraudulent
trading
Transaction
at an
undervalue
Preferences
Misfeasance

21. Mops and Mayonnaise Ltd
Members of the Local Authority are wondering
how MM is performing financially. They ask their
appointed director to send them a copy of the
next set of accounts of MM.
Can the MM Director do this?
Slido: www.sli.do
Slido #: W732

22. Directors’ personal liability
 Company will normally be liable and claims are generally brought against the
company (more resources!)
 Directors can, in unusual circumstances, incur personal liability
 Generally, directors face no personal liability to third parties for debts of company
except for the following instances:
• assume personal responsibility (enters into
contract in own name or giving personal
guarantees)
• fraud
• wrongful trading
• acting outside scope of authority
• acting in breach of director’s duties

23. Practical steps to take…
 Always take everything relevant into account
 Be familiar with the articles
 Use special skills
 Record keeping
 Avoid conflicts
 Use available support – you are not alone!
 Appoint qualified and experienced managers
 Monitor compliance
 Proper reporting
 D&O insurance

24. Reassurance and protection
• Vast majority of directors carry out their role without any problems
• Take heed of practical steps we mentioned
• Indemnity in articles
• Court’s discretion - if proceedings
were ever brought, court can grant
relief if believes “… he has acted
honestly and reasonably and …
ought fairly to be excused”

25. Questions…

26. Thank you…
Jennifer Grigg
+44 (0)1392 458773/+44 (0)7342 053740
Jennifer.Grigg@brownejacobson.com
Sandra Wong
+44 (0)115 976 6058 / +44 (0)7919 570243
Sandra.Wong@brownejacobson.com