UK Law and Practice Contributed by: Gareth Sykes, James Palmer, Isobel Hoyle and Hannah Whitney, Herbert Smith Freehills Kramer
• to exercise independent judgment; • to exercise reasonable care, skill and dili - gence; • to avoid conflicts of interest; • not to accept benefits from third parties; and • to disclose an interest in a proposed transac - tion with the company. The duties apply to all the directors of a company. However, the statutory statement of duties does not cover all the obligations of a director. Other obligations are contained throughout the Com - panies Act, such as the duty to deliver accounts and the obligation to disclose an interest in an existing transaction with the company. There are also obligations contained in other statutes; for example, the Insolvency Act 1986. In addition, directors have a general fiduciary duty to their shareholders that arises from the relationship of trust and confidence between them and their shareholders. 4.7 Responsibility/Accountability of Directors The directors’ statutory duties as set out in the Companies Act are owed directly to the com - pany (not to any individual shareholder(s) or to any stakeholder(s)). However, embedded within them is a requirement to have regard to the inter - ests of a number of stakeholders. The duty to promote the success of the company requires directors to have regard to the interests of its employees, community and the environment, and to foster the company’s relationships with suppliers, customers and others when consider - ing this duty. In addition, the directors owe a fiduciary duty under the common law to shareholders to pro - vide them with information that is sufficient, clear and not misleading, to enable them to make an informed decision as to how to vote at a share -
holder meeting. Directors also have a common law duty to consider the interests of the compa - ny’s creditors when a company is facing actual, imminent or probable insolvency (ie, the “credi- tor duty” ), which was affirmed by the Supreme Court in a 2022 court judgment. 4.8 Consequences and Enforcement of Breach of Directors’ Duties As a general rule, a company is the only person able to bring a claim against one of its directors for breach of duty, since the duty is owed by the directors to the company itself. This means that a shareholder (acting on their own behalf) cannot bring an action against a director for breach of duty. This results in practical difficul - ties, in so far as the board is unlikely to approve the company bringing an action against one of its own for breach of duty. To mitigate this, the Companies Act contains a statutory procedure pursuant to which a shareholder may, in certain circumstances, bring a derivative claim on behalf of the company. Further detail on such actions is set out in 5.4 Shareholder Claims . 4.9 Other Bases for Claims/Enforcement Against Directors/Officers In addition to liability relating to breaches of duty, directors may also be liable for breaches of statutory provisions within the Companies Act, such as those relating to unlawful distributions or unlawful directors’ remuneration payments. In certain circumstances, directors may also be subject to criminal penalties, particularly in rela - tion to health, safety and environmental matters; competition and anti-competitive behaviour; and bribery, corruption and fraud. Directors can, to an extent, protect themselves from the liabilities arising from their role; how - ever, there are some limitations on public policy grounds. A company may generally indemnify
853 CHAMBERS.COM
Powered by FlippingBook