Directors' Duties and Obligations in a Company: A Case Study

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Name of student
Institution
Title
Tutor
Year

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INTRODUCTION
Every director in any company owes legal obligations and duties to the company1. These
obligations are designed to protect the company and ensure that the directors’ practice due
diligence in their operations, act in good faith and loyal to the company. Directors of a company
are generally required to act within their scope of powers conferred to them2, promote the
success of a company3, exercise independent judgement4, to exercise reasonable care, skill and
diligence5, to avoid conflict of interest with the company6 , not to accept any benefit from third
parties7 and the duty to declare any interests in transactions o arrangements with the company. If
a director violates their duties, they could be liable individually or as a company. A breach of a
general duty and obligation of a director gives the company equitable remedies against the
director including injunctions or damages8. The four directors, namely; Simon, Ralph, Nicola
and Miles, have all breached their directors’ duties covered individually below.
SIMON
ISSUES
1. Whether Simon had acted in breach of the duty to promote the success of the company.
2. Whether Simon had acted in breach of duty to exercise reasonable care, skill and
diligence.
1 Bryan Horrigan, Corporate Social Responsibility In The 21St Century:Debates, Models And Practices Across
Government, Law And Business (Edward Elgar Publishing 2010).
2 Section 171 of the Companies Act 2006
3 Section 172 of the Companies Act 2006
4 Section 173 of the Companies Act 2006
5 Section 174 of the Companies Act 2006
6 Section 175 of the Companies Act 2006
7 Section 176 of the Companies Act 2006
8 Sue McLaughlin, Unlocking Company Law 2Nd Edition (2nd edn, Routledge 2013).

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RULES
The Companies Act 2006 (CA) in addition to the Common Law principles on the general duties
of the director of a company applies in this case.
The Insolvency Act (1986) also applies in this case.
ANALYSIS
1. Whether Simon had acted in breach of the fiduciary duty to promote the success of
the company.
The director of a company is obligated to act in a bona fide manner that would promote the
success and welfare of the respective company9. A director must act in was that is considered in
good faith in order to promote the interest and success of the company for the benefit of its
members.
The Companies Act 2006 requires the director to act in good faith to promote success of the
company and to act for a proper course. Section 172 of the Companies Act 2006 states:
“(1) A director of a company must act in the way he considers, in good faith, would be most likely to
promote the success of the company for the benefit of its members as a whole.” and in doing so have
regard (amongst other matters) to—
(a)the likely consequences of any decision in the long term,
9 Roach, Lee, The Director's Duty of Skill and Care: Has the Law Commission Got it Right? (1999). Business Law
Review, Vol. 20, No. 51, 1999. Available at SSRN: https://ssrn.com/abstract=1754664 [Accessed 28 Sep. 2019].

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(b)the interests of the company's employees,
(c)the need to foster the company's business relationships with suppliers, customers and others,
(d)the impact of the company's operations on the community and the environment,
(e)the desirability of the company maintaining a reputation for high standards of business conduct, and
(f)the need to act fairly as between members of the company.
(2) Where or to the extent that the purposes of the company consist of or include purposes other than the
benefit of its members, subsection (1) has effect as if the reference to promoting the success of the
company for the benefit of its members were to achieving those purposes.
(3) The duty imposed by this section has effect subject to any enactment or rule of law requiring directors,
in certain circumstances, to consider or act in the interests of creditors of the company.”10
A director will breach this duty if he fails to give proper considerations to interest of the
company ahead of other interests.
The role of director as an individual is to attend the board of directors meeting by enabling the
company to reach decisions and ensuring the company’s fundamental obligations are met.11
Simon has clearly failed to attend the board meetings and is no longer interested in the day-to-
day running of the company. He is supposed to be loyal and owe his allegiance to the company
be attending the board meetings and ensuring that he enables the company in making decisions
but he’s failed.
10 Section 172 of the Companies Act 2006
11 Burges-salmon.com. (2019). The responsibilities and duties of a company director. [online] Available at:
https://www.burges-salmon.com/news-and-insight/publications/the-responsibilities-and-duties-of-a-company-
director/ [Accessed 28 Sep. 2019].