Companies Act 2006 Conference Directors Duties

1
Companies Act 2006 Conference Directors Duties

• Geoff Yates
• Addleshaw Goddard LLP
• 7 November 2007

2
The plan of attack

• Background
• Directors Duties under the 2006 Act
• Claims for breach of directors duty
• Conflicts of Interest
• What should directors do?

3
BackgroundDirectors Whom does it affect?

• Legal directors
• Executive
• Non-executive
• Shadow directors
• Alternate directors
• Not those with the just the title of director

4
Directors duties the old regime

• General common law/fiduciary duties
• Not to be conflicted/make a secret profit
• Exercise skill, care and diligence
• Loyalty act in the best interests of the
  company

5
Directors duties the current regime

• Specific statutory duties
• e.g.
• Companies Act 1985
• Health and Safety at Work etc Act 1974
• Environmental legislation
• Regulatory (e.g. FSMA/FSA)
• Insolvency (e.g. Wrongful/Fraudulent Trading)

6
Directors duties in overview

• The current regime
• Specific statutory
• Common law/fiduciary

• Under the 2006 Act
• Specific statutory
• Common law/fiduciary
• Codified duties under 2006 Act

7
Directors duties under the 2006 Act

• Duty 1 Act within powers (s.171)
• A director must
• act in accordance with the companys constitution
• only exercise powers for the purpose for which
  they are conferred

8
Directors duties under the 2006 Act

• Duty 2 Exercise independent judgement (s.173)
• A director must exercise independent judgement
• This is not infringed by his acting
• in accordance with an agreement entered into by
  the company that restricts the future exercise of
  discretion or
• in a way authorised by the companys constitution

9
Directors duties under the 2006 Act

• Duty 3 Not to accept benefits from third
  parties (s.176)
• A director must not accept a benefit from a third
  party conferred by reason of
• his being a director or
• doing (or not doing) anything as a director
• Duty is not infringed if
• acceptance cannot reasonably regarded as likely
  to cause conflict
• benefit conferred by company/group or through
  service contract

10
Directors duties under the 2006 Act

• Duty 4 General conflicts of interest (s.175)
• A director must avoid a situation in which he
  has, or can have a direct/indirect interest that
  conflicts, or may conflict, with the interests of
  the company
• Does not apply if
• situation cannot reasonably be regarded as likely
  to give rise to a conflict
• matter is authorised by unconflicted directors

11
Directors duties under the 2006 Act

• Duty 5 Declare interests in proposed
  transactions (s.177)
• A director must declare the nature and extent of
  any direct/indirect interest in a proposed
  transaction
• Duty 5A Declare interests in existing
  transactions (s.182)
• Where a director is, in any way, directly or
  indirectly, interested in a transaction that has
  been entered into by the company, he must declare
  the nature and extent of the interest
• As from 1 October 2008

12
Directors duties under the 2006 Act

• Duty 6 Use reasonable skill, care and diligence
  (s.174)
• This means the care, skill and diligence that
  would be exercised by a reasonably diligent
  person with
• the general knowledge, skill and experience that
  may be reasonably expected of a person carrying
  out the functions carried out by the director
  and
• the general knowledge, skill and experience that
  the director has
• Objective and subjective assessment

13
Directors duties under the 2006 Act

• Duty 7 Promote the success of the company
  (s.172)
• In good faith, act in a way he believes most
  likely to promote the success of company for the
  benefit of members as a whole
• and in doing so have regard to, among other
  things
• the consequences of decision in the long term
• the interests of employees
• business relationships with suppliers, customers
  etc
• the impact on the environment
• maintaining a reputation for high standards of
  conduct
• the need to act fairly between members

14
Directors duties under the 2006 Act

• Any DTI/DBERR guidance?
• Boiler plate or affirmative action?
• Consider every factor?
• The need for a paper trail?
• Will enlightened shareholder value.
• Change the decisions made?
• Change the way in which decisions are made?
• GC 100 guidance

15
Claims for breach of directors duty

• Duties are owed to the company
• Only the company can enforce them
• Some limited exceptions
• Derivative claims
• Concept now based in statute (s.260)
• Further grounds on which to claim, including
  breach of duty and negligence

16
Claims for breach of directors duty

• Court role in preventing speculative claims
• What would an unconflicted director do?
• Penalties

17
What should directors do?

• Understand the new duties (see handbook)
• Highlight issues to your fellow directors
• Revise board procedures
• Decision making and recording
• Audit Trails (Briefing Papers, not minutes)
• Manage conflicts

18
What should directors do?

• Indemnification/DO insurance
• Think carefully about
• Accepting directorships
• Influencing when not a director
• Trading into the twilight zone
• Seek advice

19
Contact Details

• ? 020 7544 5483
• ? Geoff.Yates_at_addleshawgoddard.com
• ? 07775 586425