Director's Duties

The general duties in ss.170-181 of the Companies Act 2006 were, according to the Act's own Explanatory Notes, recommended by the Law Commission and the Scottish Law Commission as a statutory statement of directors' existing fiduciary duties and duty of care, largely codifying — rather than changing — the pre-existing common law and equitable rules. The Notes explain that the duties address two underlying risks: "the possibility that a director may put his own or other interests ahead of those of the company" and "the possibility that he may be negligent". The duties are owed by every person who is a director, including a de facto director, in the same way as a properly appointed one, and certain duties (avoiding conflicts of interest, not accepting third-party benefits) continue to apply even after someone stops being a director, precisely to stop a director exploiting an opportunity discovered while in office simply by resigning first.

A key structural point, confirmed in the Explanatory Notes, is that the duties are cumulative: "it is necessary to comply with every duty that applies in any given case", so a director cannot justify breaching the duty to act within their powers merely by arguing that doing so would best promote the success of the company. The duties are, with one exception, treated as fiduciary in nature — the Notes record that the statutory duties "are to be regarded as fiduciary, with the exception of the duty to exercise reasonable care skill and diligence which is not under the present law regarded as a fiduciary duty". Because of that fiduciary character, the consequences of breach mirror the remedies available for breach of an equitable duty: the Notes list these as potentially including "damages or compensation where the company has suffered loss", "restoration of the company's property", "an account of profits made by the director", and "rescission of a contract where the director failed to disclose an interest". As the duties are owed to the company itself, it is ordinarily only the company that can enforce them, though Part 11 of the Act allows members to bring a derivative claim on the company's behalf in appropriate cases.