Company Law: Director's Duty in English Law

This report discusses the codification of director's duties under the Companies Act 2006 in the UK. It analyzes the effectiveness of the act in defining the director's duty and highlights the confusion that still exists in some sections. The report includes arguments developed by MacDonald and Hood.

Company Law
Running Head: COMMERCIAL LAW 0
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Student’s Name

Company Law 1
Contents
Contents
Contents.......................................................................................................................................................1
Introduction.................................................................................................................................................2
Discussion...................................................................................................................................................2
Conclusion...................................................................................................................................................3
Bibliography................................................................................................................................................4
Legislations.............................................................................................................................................4
Books/Journals........................................................................................................................................4
Other Resources......................................................................................................................................4

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Introduction
Companies Act 20061 is the lead legislation in the UK that governs the companies over there.
The subjective act provides the provisions related to working of a company, duties, and powers
of directors and so on. Many of the cases have been reported and precede, where the justices
have referred this act. The report prepared hereunder is focused on the discussion that up to what
extent, the mentioned act helps to define the director’s duty in English law. For better
understanding of the topic, the discussion will include the learning and arguments developed by
MacDonald (2011) and Hood (2013).
Discussion
Chapter 2 of Companies Act 2006 is there which codifies the director’s duty. It consists sections
from 170 to section 181 of the act itself. Duties of directors are defined under section 171 to 177
of the act. Before this codification, the director's duties were required to perform under common
law. However, the duties mentioned under these sections are based on the already existing
equitable principles and common law rules2. How effectively these sections clarify the duty of a
director, can be understood by the study of a few of them. Due to the codification, Section 170
(1) of the act made it clear that a director of the company owes his/her duty towards the company
and not the shareholders. Before the enactment of this section, it was not clear that to whom a
director own such duties. However, a bit confusion is still there when someone studies section
170 (1) of the act with section 172(1) of the act. The later section says that a director must act in
1 Companies Act 2006
2 Robin MacDonald, ‘The Companies Act 2006 and the Directors’ Duty to Disclose ‘
<https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1767469> accessed 19 November 2018

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good faith for the success of the company and for the goodness of members in total3. These two
sections are contradictory as they both made their focus on different audience.
In conjunction to this, if someone would read section 172(3) according to common law, that it
will seem a director need to consider the creditors as priority at the time of financial difficulties4.
But section 178 (2) again make it confusing by stating that duties mentioned under section 171 to
177 should be followed similar to any other fiduciary duties. The duties mentioned under these
sections are clear but their applicability is not. This statement can be proven by the fact that
subsection 4 of section 170 of the act says that the general duties mentioned under section 171 to
177 of the act should be interpreted and applied according to the common law rules. The duties
do exist in isolation sometimes and do not consider the provisions of another chapters and
sections of the act.
Conclusion
To conclude the topic hereby, this is to be stated that after the reading and review of two
leanings, it is far clear that although codification of general duties of director under the act made
it easy to understand that what exact duties a director own in a company, yet it makes some
confusion while reading with another section. Similar to the Corporations Act 2001 (Cth)5, the
Companies act 2006 of UK is also not a complete code itself.
3 legislation.gov.uk ‘Companies Act
2006’,<http://www.legislation.gov.uk/ukpga/2006/46/pdfs/ukpga_20060046_en.pdf> accessed 19 November 2018
4 Parker Hood, Directors’ Duties Under The Companies Act 2006: Clarity Or Confusion? (2013) Journal Of
Corporate Law Studies 1
5 Corporations Act 2001 (Cth)

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Bibliography
Legislations
Companies Act 2006
Corporations Act 2001 (Cth)
Books/Journals
Parker Hood, Directors’ Duties Under The Companies Act 2006: Clarity Or Confusion? (2013) Journal
Of Corporate Law Studies 1
Other Resources
legislation.gov.uk ‘Companies Act
2006’,<http://www.legislation.gov.uk/ukpga/2006/46/pdfs/ukpga_20060046_en.pdf> accessed
19 November 2018
Robin MacDonald, ‘The Companies Act 2006 and the Directors’ Duty to Disclose ‘
<https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1767469> accessed 19 November 2018