ACCA F4 - Corp and Business Law (ENG)

Part F Management, administration and regulation of companies  18: Company directors 281

8 Powers of an individual director

The position of any other individual director (not an MD) who is also an employee is that:

(a) They do not have the apparent authority to make general contracts which attaches to the position

of MD, but they have whatever apparent authority attaches to their management position.

(b) Removal from the office of director may be a breach of their service contract if that agreement

stipulates that they are to have the status of director as part of the conditions of employment.

9 Duties of directors

The Companies Act 2006 sets out the seven principal duties of directors.

The Company's Act 2006 sets out the principal duties that directors owe to their company. Many of these

duties developed over time through the operation of common law and equity, or are fiduciary duties

which have now been codified to make the law clearer and more accessible.

When deciding whether a duty has been broken, the courts will consider the Companies Act primarily. All

case law explained in this section applied before the 2006 Act and is included here to help you understand

the types of situation that arise and how the law will be interpreted and applied by the courts in the future.

In the text below on directors' statutory duties we have included references to sections of the Companies

Act 2006. They have been provided purely for reference. Exam questions will focus on the content of the

duties.

Fiduciary duty is a duty imposed upon certain persons because of the position of trust and confidence in

which they stand in relation to another. The duty is more onerous than generally arises under a contractual

or tort relationship. It requires full disclosure of information held by the fiduciary, a strict duty to account

for any profits received as a result of the relationship, and a duty to avoid conflict of interest.

Broadly speaking directors must be honest and not allow their personal interests to conflict with their

duties as directors. The directors are said to hold a fiduciary position since they make contracts as

agents of the company and have control of its property.

The duties included in the Companies Act 2006 form a code of conduct for directors. They do not tell them

what to do but rather create a framework that sets out how they are expected to behave generally. This

code is important as it addresses situations where:

 A director may put their own interests ahead of the company's, and

 A director may be negligent and liable to an action in tort.

9.1 Who are the duties owed to?

Section 170 of the Companies Act makes it clear that directors owe their duties to the company, not the

members. This means that the only company itself can take action against a director who breaches

them. However, it is possible for a member to bring a derivative claim against the director on behalf of the

company.

The effect of the duties are cumulative, in other words, a director owes every duty to the company that

could apply in any given situation. The Act provides guidance for this. Where a director is offered a bribe

for instance they will be breaking the duty not to accept a benefit from a third party and they will also not

be promoting the company for the benefit of the members.

When deciding whether or not a director has breached a duty, the court should consider their actions in

the context of each individual duty in turn.

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