Directors’ Powers, Duties and Liabilities
Directors’ Service Agreements
A Director will usually have a written contract of employment, commonly known as a Service Agreement. If you are a Director registered at Companies’ House then you will have additional obligations and liabilities.
Directors are generally responsible for the management of a company. However, the extent of their authority is constrained by the Companies Act 2006, the Company’s Articles of Association and, if they are also an employee, the terms in their own Service Agreement.
A serious breach of the duties and requirements can result in a Director being disqualified from acting as a Director and incurring personal liability. The Director could also be dismissed from employment and removed from their office.
As a Director you should be aware that you are personally responsible and liable in your capacity as Director of a company. It’s important therefore that you know what obligations you owe and that you comply with them.
The Companies Act 2006 codified the law on Directors’ obligations although other common law obligations still remain. The obligations under the Companies Act are –
- to act within powers in accordance with the company’s constitution and to use those powers only for the purposes for which they were conferred
- to promote the success of the company for the benefit of its members
- to exercise independent judgement
- to exercise reasonable care, skill and diligence
- to avoid conflicts of interest
- not to accept benefits from third parties
- to declare an interest in a proposed transaction or arrangement
Being a Director brings with it a higher degree of responsibility than an employee and, increasingly, the risk of personal liability. Directors may incur personal liability, both civil and criminal, for their acts or omissions.
If you are found to be in breach of your obligations then it’s important that you understand the implications. For example you could face disqualification from acting as a Director for up to 15 years or be personally liable for a company’s debts under the Insolvency Act 1986 and the Company Directors’ Disqualification Act 1986. The Health and Safety at Work etc Act 1974 and the Corporate Manslaughter and Corporate Homicide Act 2007 also create the possibility of criminal convictions if you fail to comply with their requirements.
- Company Directors’ Disqualification Act 1986
- Insolvency Act 1986
- Health and Safety at Work etc Act 1974
- Corporate Manslaughter and Corporate Homicide Act 2007
We can advise you on your duties and liabilities as a Director and ensure you are not left exposed.
If you would like information on how we can help to protect you with Directors and Officers Liability insurance please CONTACT US.