298 Chapter 11Companies (2): Management, control and winding up
Disqualification of directors
Directors are not automatically entitled to any salary. However, if, as is usual, directors
have a contract which gives them a salary then they will be able to sue for compensation
if the contract is breached. The directors can be paid even if the company does not make
any profit.Directors’ duties
Sections 171–177 set out seven general duties which all directors owe to their companies.
Generally, it would be the company which would sue if one of these duties was breached.
If the company was unwilling to do this, a member of the company could bring a derivative
claimunder s. 260. (Derivative claims are considered later in this chapter on pp. 310 –11.)
The new statutory duties codified the common law. So when the courts interpret and
develop them they will bear in mind the principles of law which existed before the 2006 Act
came into force. It should be remembered that, in addition to the general duties, the 2006
Act imposes many administrative duties on directors, such as the duty to file accounts.
The seven general statutory duties are as follows:
The duty to act within powers (Section 171)
The duty to promote the success of the company (Section 172)
The duty to exercise independent judgment (Section 173)
The duty to exercise reasonable care, skill and diligence (Section 174)
The duty to avoid conflicts of interest (Section 175)
The duty not to accept benefits from third parties (Section 176)
The duty to declare an interest in a proposed transaction or arrangement (Section 177).
More than one of the general duties may apply in any given case.The duty to act within powers
Section 171 states that a director of a company must:
(a) act in accordance with the company’s constitution, and
(b) only exercise powers for the purposes for which they are conferred.
Before the 2006 Act came into force, this duty would have been regarded as two separate
duties. The meaning of a company’s constitution was set out in the previous chapter.
However, in this context the company’s constitution also includes unanimous informal
decisions taken by the company members, even if these concern a matter which would not
have needed to be passed as a special resolution.HeldA managing director would usually have authority to employ architects. The com-
pany had represented that Kapoor was managing director. Therefore, as regards people
dealing with the company in good faith, Kapoor had the authority to bind the company as
if he really was managing director. The company had held him out to have such powers to
bind the company, so could not deny that he did have such powers. In agency terms,
Kapoor had apparent authority to bind the company and the company would be ‘estopped’
from denying this later.