Legal Report: Duty of Directors to Promote Company Success

This report examines the legal duties of company directors, with a specific focus on their responsibility to promote the success of the company, as outlined in the Companies Act 2006. The report delves into Section 172 of the Act, which mandates directors to act in good faith to benefit the company's members, considering long-term consequences, employee interests, business relationships, societal and environmental impact, fair treatment of members, and high standards of business conduct. The report explores the 'enlightened shareholder value' approach and discusses the implications of directors' decisions, including potential liabilities and the importance of creditor considerations, especially in cases of insolvency. It also highlights case laws like Cook and Deeks and Extrasure Travel Insurance Ltd v Scattergood, which exemplify how directors' duties of care are applied in practice. The conclusion reinforces the multifaceted nature of directors' duties, emphasizing the importance of fair and ethical conduct in promoting company success and the significance of stakeholder considerations.

Legal aspect of business
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Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6
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INTRODUCTION
In every company there are many people who work together to attain common goals. In
that top management play vital role specially the directors. It is because they are having several
roles and responsibilities towards company. Thus, they have to adhere them within company.
However, director also takes decisions as well. In this stakeholders are involved in it. Thus,
success of company depends on duties of director that is being followed in it (Andersen, 2018).
In this report it will be described about duty of director to promote success of company as
per companies act 2006.
MAIN BODY
Duty to promote the success of company (section 172 companies act 2006)
It is analysed that every company has to register themselves under the companies act
2006. This is because the act consists of several laws and regulations which company has to
be follow. Moreover, the act defines some duties of director which they have to adhere and act
in ethical way within company. Thus, there are various duties of director defined in it such as
duty to act within powers, duty to promote success of company, duty to exercise independent
judgment, avoid conflict of interest, etc. besides that director plays crucial role within company.
They are known as trustee of company and follows certain principles as well. But here it will be
discussed about duty to promote success of company by director. There were two possible
approaches to address the issue, namely the shareholder value approach and the pluralist
approach (Conac, , 2016).
It has been evaluated that the main thing in this duty is to enlightened share holder value.
It means that director must act in such a way that he is promoting success of company. Here,
director needs to have a good faith towards company so that the members are benefited in it. so,
there are several things in this regard which needs to be done that is :
Likely consequence of decision taken for long term
Interest of employees of company
To build strong relationship with suppliers, wholesalers, customers etc.
Impact of operations of company on society and environment
To act in fair and better way between company members
To maintain high standards of business conduct and its reputation (Corbisier, 2017)
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It has been stated that as per companies act 2006 the enlightened share holder value duty
needs to followed in effective way. Here, director must be able to act in fair manner in order to
promote company success. This has to be done as long as they are directors. So, if there is any
bad decision taken in it then directors are liable for it. however, as per section 174 in this it
impose duty to exercise reasonable care and diligence on them. But there are some matters in
which directors are not exhaustive. The list of matters to which the directors must have regard,
set out in section 172(1). The list make it quite plain that promoting the success of the company
means much more than merely maximizing profit.
Besides that, as per section 172 (3) that is related to creditors in it duty imposed by it is
affected by subject to rule of law requiring directors. Thus, in some situations it is considered in
interest of creditors of company. Furthermore, at time of insolvency It is hard to predict the
long term impact of section 172. It might significantly alter the approach required of directors so
that they do genuinely consider the interests of the listed stakeholder groups. In addition section
172 state that whom directors are responsible, also, there are certain consideration for resolving
stakeholder conflicts (Gilson, 2016).
Members as whole - director decision must be for benefit as member as whole. Here, whole
refers to not to promote interest of particular group.
Have regard to – in this there is list of stakeholder which director must have regard to. The list
are interest of corporation, interest of employees, etc. alongside, another regard is interest of
stakeholder, etc. besides that, regard is consumer and environment protection.
Creditors- Fourthly, according to s.172 (3), the duty imposed on directors by s.172 is partially
qualified by their duties towards creditors under relevant legislations and the common law.
Enforcement – it enforces that director must report their business review to inform members.
With that it allows director to perform duty in section 172 (Ivkosic, 2020).
Therefore, it is evaluated that director duty in promote success of company consists of
many other things as well. So, as per section 172 director duty relate to creditor, stakeholder,
etc. so, all decision are taken within interest of these people. It allows in giving rights to them to
take decisions independently. It has been identified that there are several case laws related to
this duty of director in which he has effectively promoted success of company. For example-
cook and deeks, extrasure travel insurance ltd v scattergood. So, these case are example of how
director duty of care is followed by them. Thus, it has shown what legal action is to be taken
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when director breach its duty. Moreover, the act defines some duties of director which they
have to adhere and act in ethical way within company.
CONCLUSION
Hereby, it is concluded that there are many duties of director of company which they follow
such as duty to act within power, to exercise independent judgment, avoid conflicts of interest,
etc. However, in duty to promote success of company director must be able to act in fair manner
in order to promote company success. This has to be done as long as they are directors. There
are various regards in section 172 of directors that are have regard to, stakeholder, creditors, etc.
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REFERENCES
Books and journals
Andersen, P.K., 2018, August. The European Model Company Act (EMCA)—a tool for
European integration. In ERA Forum (Vol. 19, No. 1, pp. 77-85). Springer Berlin
Heidelberg.
Conac, P.H., 2016. The Chapter on Groups of Companies of the European Model Company Act
(EMCA). European Company and Financial Law Review, 13(2), pp.301-321.
Corbisier, I., 2017. European Model Company Act (EMCA).
Gilson, R.J., 2016. A Model Company Act and A Model Company Court.
Ivkosic, M., 2020. Limited Liability Company in the Light of Amendments to the Company Act
of 2019. Zb. Radova, 57, p.551.
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