All directors are obliged to comply with the common law and statutory obligations upon them in relation to the range of general and specific duties which the law requires of them.
These general duties fall into three categories:
- The duty to act within their authority
- Fiduciary duties
- The duty to exercise care, skill and diligence in the performance of the duties.
The duty to act within their authority
Directors must act within the scope of the powers delegated to them as agents of the company. Most commonly, this is by a resolution of the shareholders who give board members general authority to exercise all of the company’s powers. This is normally done through the Articles of Association. Alternatively shareholders can pass special resolutions to authorise directors to act in a particular way. In the absence of any unambiguous authority, directors are expected to discharge this duty by following a ‘reasonable course of action in the company’s best interests’.
Fiduciary duties
These include the following:
- Acting within their powers
- Promoting the company’s success
- Exercising independent judgement
- Avoiding conflicts of interest and duty
- Not accepting benefits from third parties
- Disclosing interests in proposed and existing transactions or arrangements
The duty to exercise care, skill and diligence
The basis of this duty arises from the director’s assumed responsibility for managing the affairs of the company, separate from any specific duties in any Service Agreement. A director is expected to exercise this duty to a level that would be exercised by a reasonably diligent person with the general knowledge, skill and experience that might reasonably be expected of a person in his position and that he actually possesses.
The implications and the consequences of any breaches of these duties are complex and should be considered within the context of the Companies Act 2006.