Ensuring Compliance with Directors' Duties – Some Practical Tips

Directors' duties

Day to day control of a company is delegated by the shareholders to the company’s directors. They act as the public representatives of the company, with authority to manage its business, commit it to contract terms and oversee its overall strategy and performance. Directors are, however, accountable and are subject to a number of duties and responsibilities to prevent any abuse of power and ensure they are acting in the interests of the company’s ultimate owners.

Many of a director’s duties are codified under the Companies Act 2006 and include general obligations to exercise care, skill and diligence, and independent judgment, as well as to promote the success of the company, for the benefit of its members as a whole. Other duties also apply in the event of a company’s insolvency.  If you would like any further information about what any of these duties and responsibilities are and what they mean, please contact our corporate team.

Practical compliance tips

All directors should be aware of their duties and responsibilities to the company, and there are some practical steps that can be taken to help ensure compliance:

• Ensure all directors have access to, and are familiar with the terms of, the company’s articles of association and any shareholders’ agreement(s), and that they are aware of their obligation to act in compliance with their terms at all times
• Ensure that all directors are aware of the filing obligations (both annual and event-driven) applicable to the company, in respect of Companies House, HMRC and any other relevant regulatory or official body.  In many cases, compliance tasks are delegated out to a company’s external advisors (such as its lawyers or accountants) although the company, and specifically the directors, remain legally responsible for performing these obligations
• Keep clear and contemporaneous records of all board decisions and the decision-making process, including the consideration of relevant directors’ duties. Board minutes should be sufficiently detailed so as to be a relevant point of reference at a future date, in the event of any dispute as to the business of any meeting. Under company law, board minutes should be kept for at least 10 years
• Consider directors’ and officers’ (D&O) insurance for all current directors to protect them from liability arising out of claims in negligence, breach of duty etc
• Even once a director ceases to be appointed, he may still be liable under certain duties (such as avoiding conflicts of interest or using information deriving from his role as a director for his own purposes).  Run-off D&O insurance can provide ongoing protection

If in doubt, an individual director should seek advice from a suitable independent professional (accountant, tax advisor or lawyer).  Just because one director is willing to act in a certain way does not mean another should automatically do the same – remember that requirement to exercise independent judgment!

If you have any questions on the above, please contact our corporate and commercial team .