By David Gee
With Covid-19 creating an uncertain and challenging environment for businesses, it is of vital importance that company directors are aware of their legal duties as they make very tough decisions in the coming weeks and months.
For the vast majority of businesses across all sectors, the Covid-19 pandemic has created a deeply challenging environment in which to operate. Companies are being faced with a number of tough decisions and, for most businesses, these decisions will likely fall on the Board of Directors.
Company directors must always be mindful of their duties to the company but even more so in times of global crisis where the consequences of any decisions made can often be far more acute. As such, it is of vital importance that any decisions made by directors in the coming weeks and months are considered within the framework of the duties owed to the company.
What are my duties as a director?
As a director of a UK company, a number of duties are owed to the company which include:
- A duty to act within your powers (i.e. within the company's constitution and within any powers specifically designated to you as a director);
- A duty to promote the success of the company for the benefit of its members (shareholders) as a whole;
- A duty to exercise independent judgment (i.e. to exercise judgment without subordinating powers to the will of others, whether by delegation or otherwise (unless authorised by or under the constitution to do so));
- A duty to exercise reasonable care, skill and diligence in performing the role of director;
- A duty to avoid conflicts of interest;
- A duty not to accept benefits from third parties; and
- A duty to declare any interest in a proposed transaction or arrangement with the company.
The above is not an exhaustive list and there are other duties owed to the company which directors must be mindful of. For example, the interest of any creditors of the company should always be considered along with a general duty of confidence.
Should any duties take precedence over the others?
The duties of a director apply cumulatively and so, if more than one duty is considered to apply to the scenario at hand, it is crucial that all applicable duties are complied with. It is not possible to justify the breach of one duty on the basis that the actions taken were to fulfil another.
What are the consequences of a breach of duty?
If a director is held to have breached their duties to the company, the company (or, in certain circumstances, shareholders by way of derivative action) may enforce such breach against the director. Depending on the duty which has been breached, this may lead to the payment of damages, an injunction, a transaction being set aside, restoration of company property held by the director, restitution or account of profits.
As such, if you are a director it is vitally important that you are aware of the full scope of your duties to the company as any breach may result in personal liability.
Fletcher Day has a wealth of experience advising directors as to their duties and ensuring that decisions are taken in a compliant manner. If you would like to know more about your duties as a director, please contact Piers Larbey on 020 7870 3870 or David Gee on 020 7766 5260.