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General duties of directors under CA2006 - Coggle Diagram
General duties of directors under CA2006
Directors have many duties under CA2006, most give rise to potential criminal sanctions
Directors also have a number of civil duties under CA2006
The duties derive from common law and equitable principles developed by the courts over many years. The UK government decided to codify these duties in the CA2006 in order to make them more accessible and easier for directors to understand
The general duties are owed by the directors to the company and concern the manner in which they carry out their functions as agent of the company
They set certain minimum standards of conduct and behaviour on the part of the directors
If they act in breach of these duties, they can be sued by the company in civil proceedings which may result in them having to pay the company compensation for any losses that it suffered or account to the company for any secret profits they made
There is no limit to the amount of compensation that may be awarded in these civivl cases
As the duties are owed to the company, only the company can bring an action against the directors for a breach of the general duties
As an exception shareholders can bring what is known as derivative action in the name of the company, however if they win any compensation is still paid to the company
Common law and fiduciary duties of directors
Section 170 of CA2006 confirms that the general duties of directors are based on certain common law rules and equitable principles as they apply to directors and have effect in place of those rules and principles as regards the duties owed to a company by a director
Statutory general duties should be interpreted in the same away as the common law rules and equitable principles
Most of the common law rules developed by the courts for directors were based on the rules that they had already applied to trustees
A fiduciary duty is one owed by a person in a position of turst
The courts decided that company directors are also in a position of trust because they act as agents of the company, make contracts on its behalf and control the company's property
The fiduciary duties that trustees owe to the beneficiaries of a trust include
To act in good faith in the interests of the beneficiaries
To act in accordance with the trust deed
Not to profit from their position
Not to place themselves in a position where their own interest conflicts with their fiduciary duties
Not to act to their own advantage or the benefit of a third person without the beneficiary's informed consent
To properly invest trust property
There are close pralellels between the duties owed to beneficiaries and the general duties of directors, subject to the duty to exercise due skill, care and diligence
Section 170 confirms that these duties are owed by a director to the company and equally apply to any shadow director, as well as NEDs and executive directors
Consequences of a breach
CA2006 states the consequences of a breach of a directors general duties are the same as if the corresponding common law rule or equitable principle apply
The remedies available to the company depend on the nature of the breach
Directors can be made to repay any illegal payments they have received or secret profits they have made
Where there is a breach of the duty of skill and care or the directors have acted beyond their powers, the company can be awarded compensation for any losses that it has suffered
Where the directors have acted outside their powers, the courts cannot usually declare the transaction void
Where the directors have used their powers for improper purposes, the transaction can be declared void