Director Duties & Companies Act Claims

Being a company director carries significant responsibility. The Companies Act 2006 codifies a set of strict duties that every director owes to their company, forming the bedrock of corporate governance in the UK. A breach of these duties can expose a director to serious personal liability, lead to shareholder disputes, and result in complex and costly litigation. Whether you are a director facing an allegation of breach, or a shareholder seeking to hold the board accountable, navigating these claims requires specialist legal expertise.

At Central Chambers Law, our senior legal consultants are experts in company law and commercial litigation. We possess a deep, technical understanding of directors' duties and the procedures for bringing or defending claims under the Companies Act. Our function is to provide authoritative advice and to execute a robust legal strategy designed to protect your interests, your company, and your reputation.

The Core Duties of a Director

The Companies Act 2006 sets out seven general duties that directors must comply with. These duties are owed to the company itself, not directly to shareholders or creditors in most circumstances. Understanding them is essential for good governance and risk management.

The key statutory duties include:

• Duty to act within powers (s.171): Directors must act in accordance with the company's constitution and only exercise their powers for the purposes for which they are given.
• Duty to promote the success of the company (s.172): This is a cornerstone duty. A director must act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.
• Duty to exercise independent judgment (s.173): Directors must make their own decisions and not be dominated or unduly influenced by others.
• Duty to exercise reasonable care, skill, and diligence (s.174): Directors are expected to perform their functions with the care, skill, and diligence that a reasonably diligent person with their knowledge and experience would exercise.
• Duty to avoid conflicts of interest (s.175): Directors must avoid situations where they have, or could have, a direct or indirect interest that conflicts with the company's interests.
• Duty not to accept benefits from third parties (s.176): A director must not accept a benefit from a third party given because of their position as a director.
• Duty to declare interest in a proposed transaction (s.177): If a director is in any way interested in a proposed transaction with the company, they must declare the nature and extent of that interest to the other directors.

Types of Claims Arising from Breach of Duty

When a director breaches their duties, it can give rise to several types of legal action under the Companies Act.

• Direct Claim by the Company: The company itself, acting through its board or a liquidator, can bring a claim against a director for breach of duty.
• Derivative Claims (s.260-264): This is a powerful tool for shareholders. A derivative claim allows a shareholder to bring a claim in the name of the company against a director for a breach of duty. It is used when the board itself is unwilling to take action, often because the wrongdoing directors are in control. The shareholder must first obtain permission from the court to continue the claim.
• Unfair Prejudice Petitions (s.994): This is a claim brought by a shareholder in their own right. It alleges that the company's affairs are being conducted in a manner that is unfairly prejudicial to their interests as a member. Breaches of directors' duties are a very common basis for these petitions, for example, where directors are paying themselves excessive salaries or diverting business opportunities.

Remedies and Potential Defences

The remedies for a breach of duty are designed to compensate the company for the harm it has suffered.

Potential Remedies

• Damages or Compensation: A director may be ordered to pay money to the company to compensate for the loss caused by their breach.
• Restoration of Company Property: A director may be required to return any company property they have misappropriated.
• Rescission of a Contract: The court can set aside a contract entered into as a result of a director's breach.
• Injunction: The court can grant an order to stop a director from committing a threatened breach of duty.
• Account of Profits: A director can be forced to hand over any personal profits they made as a result of their breach.

Potential Defences

• Denial of Breach: Arguing that the actions taken were in accordance with the director's duties, particularly the duty to promote the company's success.
• Ratification: A company's shareholders can sometimes vote to approve or "ratify" a director's breach of duty, which may prevent a claim from being brought.
• Authorisation: For certain breaches, such as conflicts of interest, a director may have a defence if the action was authorised by the board or shareholders in advance.
• Relief from Liability (s.1157): The court has the power to grant a director relief from liability if it finds that they acted honestly and reasonably, and that it is fair to excuse them.

Why Central Chambers Law Provides the Definitive Representation

Disputes involving directors' duties are legally and factually complex, with significant consequences for all involved. Success requires a legal team with a deep understanding of corporate governance and formidable litigation skills.

Clients trust Central Chambers Law because we provide a strategic, discreet, and commercially-minded service for these high-stakes disputes. Our reputation is built on our ability to master the detail of company law and apply it to achieve our clients' commercial objectives. Our approach involves:

• Immediate, Authoritative Advice: We provide an early, clear assessment of your legal position, whether you are a director, shareholder, or the company itself, outlining the risks and the best strategic path forward.
• Deep Expertise in the Companies Act: Our team has an intrinsic, technical understanding of directors' duties and the procedures for derivative claims and unfair prejudice petitions.
• Forensic and Meticulous Preparation: We forensically analyse board minutes, company records, and all relevant evidence to build a powerful and persuasive case that supports your position.
• Powerful Advocacy: Our senior advocates are skilled negotiators and authoritative trial lawyers. We have the experience to represent your interests effectively, from boardroom negotiations to High Court litigation.

Our focused expertise means we are perfectly equipped to provide the intelligent and robust representation needed to navigate the complexities of Companies Act claims.

Secure Your Position with Immediate Expert Advice

If you are a director facing an allegation of breach of duty, or a shareholder concerned about the conduct of your company's board, you must seek specialist advice without delay. The decisions you make now will have a profound impact on the outcome.

Contact our expert company law solicitors immediately for an urgent and confidential consultation. Taking decisive action is the first step towards protecting your rights and resolving the dispute effectively.

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