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New Duties for Company Directors

Company directors in the county are being advised that new company law in force today affects the duties they owe to their companies. The Companies Act 2006, which has partly been brought into force today, introduces a statutory statement of directors’ duties. Ruth Finney, a company law solicitor at Shropshire’s Lanyon Bowdler, highlighted that it was important that company directors were aware of the new law but, equally, that it did not change current advice as to best business practice. She said: "One of the Act's most significant and controversial reforms is the codification of directors' duties. It has long been considered that the existing duties, which have developed over many years through case law, lack certainty and are not easily accessible. Now the new Act sets out in legislation seven distinct duties which directors owe to their companies”.

Wider Social Responsibility

Most notable is the statutory requirement that each director acts in a way that they consider, in good faith, would be most likely to promote the success of the company for the benefit of its shareholders as a whole, taking into account a non-exhaustive list of factors. This list of factors introduces a wider corporate social responsibility emphasis into the directors’ decision-making process. Ruth Finney commented: "Most boards of directors are unlikely to need to make significant changes to their present decision-making procedures provided they at least consider the list, only documenting those factors which are relevant to a decision". She added further: "Companies should ensure that their directors have had the new requirements explained to them so that when they make decisions they will be aware that they should take those factors into account."

Increased Litigation?

The concern for directors is that under the new regime they will face increased liabilities resulting from the inclusion of the statutory duties. This is coupled with changes in the Act to procedures for shareholder actions against directors. The new Act does, however, build in certain safeguards to prevent frivolous actions being brought by shareholders. Ruth Finney advised: "If directors are uncertain how to ensure they comply with the new law they should seek legal advice. There has been much criticism of the codification of directors’ duties. I, for one, welcome it not least because it has drawn attention to company law principles which until now have been neglected or misunderstood." For further details and contact information visit www.lblaw.co.uk