03: Common law and statutory duties of directors

A director has a general duty to act in the best interests of the company, the employees and other interested parties such as creditors and shareholders. Legislation provides that personal liability for the company’s debts can be incurred in certain circumstances.

The common law duties of directors are:

  • Fiduciary duty Directors are in a position of trust and must not abuse this. Where a conflict arises – for example between the interests of employees, shareholders and creditors in an insolvency – they must be able to demonstrate that they acted reasonably. Directors must not benefit from a transaction with the company without the prior approval of the shareholders. Similar provisions also apply to ‘connected persons’ of directors such as their families and certain other ‘associates’.
  • Skill and care Directors are expected to show the level of skill and care which is appropriate to someone holding the position, having regard to their apparent level of skill, ability experience, and qualifications.
Directors also have statutory duties, which are considered in more detail below. These are designed to make information available for public scrutiny and to prevent directors from abusing their position. Company law contains a number of provisions designed to enforce fair dealing by directors. Advice should be taken before a company enters into:

  • Financial arrangements with a director As a general rule, a company should not provide loans or any other financial assistance to a director or ‘connected person’.
  • Contracts in which the director has an interest For example, if the company purchases goods or services from another company in which the individual is also a director. This would include rental or other contracts involving properties in which the director or a ‘connected person’ has an interest.