Legal Aspects of Company Directors' Duties: A Comprehensive Review

This report provides a comprehensive overview of the legal duties of company directors, focusing on key aspects such as acting within powers, promoting the success of the company, exercising independent judgment, exercising reasonable care, skill and diligence, and avoiding conflicts of interest. The analysis incorporates relevant case law, including Percival v Wright (1902) and Item Software (UK) Ltd v Fassihi, to illustrate the practical application of these duties. The report examines the provisions of the Companies Act 2006, particularly sections 171-174 and 239, highlighting the importance of acting in good faith, the consequences of breaching duties, and the process of ratification. The conclusion summarizes the core responsibilities of directors, emphasizing their role in ensuring the company's success while adhering to legal and ethical standards. The report includes a detailed table of contents and a list of references, including books, journals, and online resources.

Legal Aspects of Business

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Duty to act within powers...........................................................................................................1
Duty to promote success of the company...................................................................................1
Duty to exercise independent judgment......................................................................................2
Duty to exercise reasonable care, skill and diligence.................................................................2
Duty to avoid conflicts of interest...............................................................................................2
Ratification at the time of a breach.............................................................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
This study will effectively focus on critically evaluating the case law associated with the duty of
a director of the company. Furthermore, this study will evaluate the duties which helps in
significantly promoting the success of the organization. The relevant case law which is
associated with the study is Percival v wright (1902).
MAIN BODY
The directors of the company in turn are highly expected to effectively act within the good faith.
The directors are considered to be as the agent of the organization rather than the trustees of the
property. They have a high degree of fiduciary relationship with the company (Mire, 2016). The
directors must act collectively. The director must always work in the best interest of the
company. This is useful in ensuring that, the director of the company in turn works in the best
interest of the company.
Duty to act within powers
Under section 171, the director of the organization must effectively act in accordance to the
constitution of the company. The director of the company must effectively comply with the
constitution of the company. In case the director of the company has been given certain power
under the organization’s rule then the individual must only use those power for the key purpose.
The Percival v wright (1902) is the significant case law within UK which is mainly concerned
with the duties of the directors. As per this case law, the directors of the company are not
considered to be as trustee of the organization. The directors of the company has the right to
purchase their own shares without disclosing any sort of pending negotiation at the time of sale
of the undertaking of the company.
Duty to promote success of the company
The Companies act 2006, section 172 tends to state that, the director of the company must
significantly act within the good faith of the company. It is useful in benefitting the members and
shareholders of the company (Mallin, Melis and Gaia, 2015). This duty is significant for
benefitting the shareholders and members of the organization as a whole. The duty to effectively
promote success associated with the company. They focus on working in the interest of the
creditors. They have the key desirability to effectively maintain reputation for carrying out the
business conduct in an ethical and reliable manner. The director must always act fairly between
the company and members which is useful in promoting success to the organization. The director
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also focuses on the consequences of the decision which can have major influence in the long run
(Promoting the Success of the Company, 2019). The director must always work in the key
relevant interest of the employee of the company. The director needs to foster significant degree
of relationship with the customers, suppliers and other stakeholders to promote success of the
company. In the case law of Item Software (UK) Ltd v Fassihi, it has been stated that it is the
duty of the director to effectively disclose any sort of misconduct on is own part in order to act in
the bona fide interest of the company.
Duty to exercise independent judgment
The Companies act 2006, section 173 tends to state that, this duty mainly comply with the
specific principle law where the directors of the company must effectively comply with the
powers independently (Sjåfjell, and Richardson, 2015). The independent judgement must not be
subordinating the power at the will of other through delegation. The director of the company
must always work in the best interest of the company.
Duty to exercise reasonable care, skill and diligence
The Companies act 2006, section 174 tends to state that the director of the organization must
always carry out the duties with utmost degree of skill, care and diligence. This is useful in
effectively carrying out and also performing the key relevant duties of the director (Biobank,
2015). In the case law of Dorchester Finance Co v Stebbing, here the director has not acted
within the reasonable care and has signed the blank cheques which resulted in the
embezzlements.
Duty to avoid conflicts of interest
The director of the organization must not enter into the agreement where the interest of the
company has been clashed. The director of the organization is not allowed to make personal
profits by engaging within the unfair business practice (ANDREW. KEAY, 2016). The director
within the company tends to significantly carries out the position of the trust within the company
and also tends to avoid key situations where the interest of the director conflict with that of the
interest of the company. The director of the company must focus on avoiding the situations
which leads to the conflict of interest. The director of the company must effectively disclose the
interest of the individual person.
Purpose rule
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The significant purpose rule which has been significantly codified in the section 171 (1) (a)
related with the Companies act, 2006 states that the director must act in compliance with the
constitution of the company. The section 171 (1) (b) related with the Companies act, 2006 states
that the director must only carry out those powers within which they have been conferred by the
company (French, Ryan, and Mayson, 2016). It is useful in protecting the shareholder interest
and also tends to ensure that the director of the organization is useful in managing the key affairs
of the company.
Ratification at the time of a breach
Section 239 of the Companies Act, 2006 is significant in providing the breach of duty set
(Hannigan, 2018). Breach is considered to be non- rectifiable when there seems to be key
elements related with the fraud which eventually includes fraudulent misappropriation of the
asset.
CONCLUSION
From the conducted study it has been summarized that, the director of the company must
always comply with the key duties which includes duty to act within powers, duty to promote
success of the company, duty to exercise independent judgment, duty to exercise reasonable care,
skill and diligence and duty to avoid conflicts of interest. This helps in working in the good faith
for the company.
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REFERENCES
Books and Journals
ANDREW. KEAY, L.L.B., 2016. DIRECTORS'DUTIES. JORDAN Publishing Limited.
Biobank, U.K., 2015. UK Biobank ethics and governance framework.
French, D., Ryan, C.L. and Mayson, S.W., 2016. Mayson, French & Ryan on company law.
Oxford University Press.
Hannigan, B., 2018. Company law. Oxford University Press, USA.
Mallin, C., Melis, A. and Gaia, S., 2015. The remuneration of independent directors in the UK
and Italy: An empirical analysis based on agency theory. International Business Review, 24(2),
pp.175-186.
Mire, S.L., 2016. Independent directors: partnering expertise with independence. Journal of
Corporate Law Studies, 16(1), pp.1-37.
Sjåfjell, B. and Richardson, B.J. eds., 2015. Company Law and Sustainability. Cambridge
University Press.
Online
Promoting the Success of the Company. 2019. [ONLINE]. Available through<
https://www.lawteacher.net/free-law-essays/business-law/promoting-the-success-of-the-
company-law-essays.php >
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