Directors' duties (Companies Act 2006)
The 7 statutory directors' duties under sections 171–177 — to whom they are owed, how they are enforced, and the personal liability risks.
Quick answer
Sections 171–177 of the Companies Act 2006 codify 7 general directors' duties: to act within powers, promote the success of the company, exercise independent judgment, exercise reasonable care, avoid conflicts of interest, not accept benefits from third parties, and declare interests in proposed transactions. The duties are owed to the company itself (not directly to shareholders), and breach can lead to personal liability, removal, disqualification, and (in extreme cases) criminal prosecution.
Overview
Before the Companies Act 2006, directors' duties were a tangle of equity, common law, and statute. The 2006 Act codified the 7 general duties to give directors a clearer framework. The duties bind every director — executive, non-executive, de facto, and shadow — and apply to every company action. Sections 172 (promote success) and 174 (reasonable care, skill, and diligence) are the most-litigated. Directors can be sued personally for breach of duty by the company, by a derivative action brought by shareholders, or (in insolvency) by liquidators or administrators.
Who Can Use This Process
- You are likely eligible to use this guide if your situation involves directors' duties (companies act 2006).
- You have a genuine legal basis for the matter (contract, tort, statutory right, etc.).
- You have made reasonable attempts to resolve the matter directly with the other party first.
Step-by-Step Process
Duty to act within powers (s.171)
A director must act in accordance with the company's constitution (articles) and only exercise powers for the purposes for which they were conferred. Acting outside powers is ultra vires and can be set aside.
Duty to promote the success of the company (s.172)
Directors must act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, having regard to 6 factors: long-term consequences, employees' interests, supplier/customer relationships, community/environment, reputation, and fair treatment between shareholders. Near insolvency this duty shifts to creditors (BTI v Sequana confirmed by Supreme Court 2022).
Duty to exercise independent judgment (s.173)
Directors must form their own judgment. They can act on advice but cannot blindly delegate. They cannot be 'puppets' for shareholders, partners, or others.
Duty of reasonable care, skill, and diligence (s.174)
Two limbs: objective (the care of a reasonably diligent person) and subjective (their actual knowledge, skill, and experience). A director with specialist skills is held to those higher standards. This is the most-litigated duty.
Duty to avoid conflicts of interest (s.175)
Directors must not place themselves in a position where their personal interests conflict with the company's. Conflicts can be authorised by the board (where the articles permit), but unauthorised conflicts are breach.
Not to accept benefits from third parties (s.176)
No taking gifts, commissions, or other benefits from third parties because of the directorship. Limited de minimis exception for ordinary hospitality.
Duty to declare interests in proposed transactions (s.177)
Directors must declare any interest in a proposed transaction at the earliest opportunity. Failure to declare is breach and can invalidate the transaction.
Important Warnings
Approaching insolvency, the duty under s.172 shifts to creditors. Acting against creditors' interests when insolvency is reasonably foreseeable can lead to wrongful trading liability.
Directors can be disqualified under the Company Directors Disqualification Act 1986 for periods of 2–15 years.
Personal liability claims can be brought by the company, by liquidators, or by shareholders via derivative actions.
Useful Links
Frequently asked questions
- What are the most common mistakes to avoid?
- Watch out for: Approaching insolvency, the duty under s.172 shifts to creditors. Acting against creditors' interests when insolvency is reasonably foreseeable can lead to wrongful trading liability.; Directors can be disqualified under the Company Directors Disqualification Act 1986 for periods of 2–15 years.; Personal liability claims can be brought by the company, by liquidators, or by shareholders via derivative actions.. If you're unsure on any of these, get advice from a regulated solicitor or a free service like Citizens Advice before acting.
- Where can I find the official forms and guidance?
- The official sources are: Companies Act 2006 sections 171–177; Director disqualification — gov.uk. Always use the forms / guidance from the issuing authority's own site — third-party copies can be out of date.
- Can I do this myself without a solicitor?
- Yes — many people complete this kind of matter as a litigant in person. The site walks through each step in plain English. A solicitor is recommended if: large sums are at stake, the other side has legal representation, the matter involves criminal liability, children, immigration, or you're unsure on any procedural deadline. Free advice is available from Citizens Advice, Law Centres, and (for some matters) LawWorks pro bono clinics.