Directors’ duties define the standards expected of those entrusted with corporate power. Now set out in Part 10 of the Companies Act 2006 (CA 2006), they originate in centuries of equitable doctrine; the statute restates and clarifies the law while preserving the influence of earlier case law, and courts interpret the duties having regard to it.

Foundations and Codification

Rooted in principles of trust and agency, directors are fiduciaries who must not profit from their position. On the recommendation of the Company Law Review, the duties were codified as a statutory restatement.

To Whom the Duties Are Owed

Under s 170(1), the general duties are owed to the company, codifying Percival v Wright (1902) (no general duty to individual shareholders), though specific relationships can create one (Coleman v Myers). The “creditor duty” in s 172(3) shifts the focus to creditors when insolvency looms: per BTI 2014 LLC v Sequana SA (2022), it triggers when directors know or ought to know that insolvent liquidation or administration is probable.

Promoting Success and Enlightened Shareholder Value

Section 172 requires good faith to promote the company’s success for the members as a whole, embodying “Enlightened Shareholder Value” (ESV): directors must “have regard to” a non-exhaustive list of factors — long-term consequences, employees, suppliers and customers, the community and environment, the company’s reputation, and fairness between members. ESV treats shareholder interest and wider responsibilities as complementary; “have regard to” means giving proper consideration, not box-ticking. The test is primarily subjective (Re Smith & Fawcett Ltd), with objective checks for irrationality or a failure to consider the company’s interests at all. Most companies must include a “s 172(1) statement” in their strategic report.

Proper Purposes

The duty to act within powers (s 171) requires powers to be used for their “proper purposes”; a collateral purpose is an abuse even in good faith. In Howard Smith v Ampol Petroleum, a share issue to dilute a majority was invalid; Eclairs Group v JKX Oil & Gas (2015) applied the rule to procedural powers. Lord Sumption there advocated a “but-for” test for mixed purposes (invalid if, but for the improper purpose, the power would not have been exercised), contrasted with the traditional “substantial purpose” test of Howard Smith; it has since been applied in TMO Renewables v Yeo, echoing Mills v Mills (1938).

Care and Independence

  • Independent judgement (s 173): directors must not “fetter” their discretion, though they may bind the company to a contract they bona fide believe beneficial (Fulham Football Club v Cabra Estates).
  • Reasonable care, skill and diligence (s 174): a dual-limbed test — the objective standard of a reasonably diligent person in the role, plus any subjective special skills the director has. Passivity is not acceptable; directors must stay informed and supervise delegates (Re Barings plc (No 5); Lexi Holdings v Luqman).

Regulation of Conflicts

Equity is strictly prophylactic — see the dedicated page on the duty to avoid a conflict of interest.

  • Avoid conflicts (s 175): avoid situations where interests “possibly may conflict”, including the corporate opportunity doctrine (Regal (Hastings) v Gulliver; Cook v Deeks); resignation is no immunity (IDC v Cooley).
  • Benefits and self-dealing (ss 176, 177, 182): s 176 bars accepting benefits (e.g. bribes) from third parties; for self-dealing, the CA 2006 requires a director to declare the nature and extent of their interest.

Redress, Liability and Relief

Remedies include an account of profits or equitable compensation. In Rukhadze v Recovery Partners GP (2025), liability to account for secret profits is strict, needing only a “nexus” to the breach; under FHR European Ventures v Mankarious (2014), bribes are held on constructive trust. Directors may be relieved by prior authorisation (s 180), ratification (s 239) (disregarding the conflicted director’s votes), or court relief (s 1157) where they acted “honestly and reasonably” (Re D’Jan of London; rarely granted where the director profited — Neptune v Fitzgerald).