Before the introduction of the statutory duties in the Companies Act 2006 (the “Act”), directors' general duties were based in common law; that is to say that they were developed by the courts through case law. These common law duties generally comprised:
- fiduciary duties (such as the duty to act in good faith in the best interests of the company as a whole, to avoid a situation of conflict, not to make a secret profit, to exercise the director's powers for a proper purpose and not allow his discretion to be fettered); and
- a duty to exercise skill and care.
The statutory duties introduced by the Act constituted a significant reform with the intention of making the law clearer and more accessible for directors, in turn helping to improve standards of corporate governance. They do not provide a complete list of all duties owed by a director. Other specific duties as set out in various pieces of legislation (including the Act) continue to apply e.g.: the duty to file certain information at Companies House. The Government also left some duties uncodified (such as the duty to consider the interests of creditors in times of threatened insolvency) with the intention that they will continue to be developed by the common law.
Further, whilst these statutory duties replaced the common law rules to which they relate, the Act expressly states that they shall be interpreted and applied in the same way as the former common law rules. Therefore, there is an ongoing need to have regard to the common law, as it may continue to be developed by the courts going forward.
For our in-depth corporate guide on 'Directors' Duties - The Statutory Regime', please click on the briefing note download button to the left.
James Waddell