ACCA F4 - Corp and Business Law (ENG)

282 18: Company directors  Part F Management, administration and regulation of companies

9.2 Who are the duties owed by?

Every person who is classed as a director under the Act owes the company a number of duties. Certain

aspects of the duties regarding conflicts of interest and accepting benefits from third parties also apply to

past directors. This is to prevent directors from exploiting a situation for their own benefit by simply

resigning. The courts are directed to apply duties to shadow directors where they would have been

applied to them previously under common law and equity.

Directors must at all times continue to act in accordance with all other laws; no authorisation is given by

the duties for a director to breach any other law or regulation.

9.3 The duties and the articles

The articles may provide more onerous regulations than the Act, but they may not reduce the level of

duty expected unless it is in the following circumstances:

 If a director has acted in accordance with the articles they cannot be in breach of the duty to

exercise independent judgement.

 Some conflicts of interest by independent directors are permissible by the articles.

 Directors will not be in breach of duty concerning conflicts of interest if they follow any provisions

in the articles for dealing with them as long as the provisions are lawful.

 The company may authorise anything that would otherwise be a breach of duty.

9.4 The duties of directors

The statutory duties owed by directors are to:

 Act within their powers

 Promote the success of the company

 Exercise independent judgement

 Exercise reasonable skill, care and diligence

 Avoid conflicts of interest

 Not to accept benefits from third parties

 Declare an interest in a proposed transaction or arrangement

We shall now consider the duties placed on directors by the Act. Where cases are mentioned it is to

demonstrate the previous common law or equitable principle that courts will follow when interpreting and

applying the Act.

9.4.1 Duty to act within powers (s 171)

The directors owe a duty to act in accordance with the company's constitution, and only to exercise

powers for the purposes for what they were conferred. They have a fiduciary duty to the company to

exercise their powers bona fide in what they honestly consider to be the interests of the company This

honest belief is effective even if, in fact, the interests of the company were not served.

This duty is owed to the company and not generally to individual shareholders. The directors will not

generally be liable to the members if, for instance, they purchase shares without disclosing information

affecting the share price.

In exercising the powers given to them by the articles the directors have a fiduciary duty not only to act

bona fide but also only to use their powers for a proper purpose.

The powers are restricted to the purposes for which they were given. If the directors infringe this rule by

exercising their powers for a collateral purpose the transaction will be invalid unless the company in

general meeting authorises it, or subsequently ratifies it.

Most of the directors' powers are found in the articles, so this duty means that the directors must not act

outside their power or the capacity of the company (in other words ultra vires).

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