A director owes statutory duties to their company under sections 171 to 177 of the UK Companies Act. These duties include the following:
• acting within their powers, including acting in accordance with the company’s constitution;
• exercising independent judgment, reasonable care, skill and diligence;
• avoiding conflicts of interest;
• promoting the success of the company for the benefit of its members;
• not accepting benefits from third parties; and
• declaring any interest in a proposed transaction or arrangement with the company.
In addition to these statutory duties, directors also owe certain other duties to a company in law, including a duty of confidence.
Directors’ duties are owed to the company, not to its shareholders, and thus it is the company which is required to instigate any legal action against a director who is in breach of their duties. The actions available to the company depend on the nature of any breach; these actions will usually include a right to claim damages or compensation, to recover any profit a director has made, and to recover any property that has been misappropriated.
A shareholder is generally not able to bring direct action against a director. However, in certain situations, a shareholder may be able to instigate legal action against a director in the company’s name.
When a company is insolvent or nearing insolvency, the primary focus of the directors’ duties moves from the company’s shareholders to its creditors.