Duties of Directors in Company Law

Essay title:

“At common law, once a person accepts appointment as a director he comes a fiduciary in relation to the company and is obliged to display the utmost good faith towards the company and in his dealings on its behalf”.

Howard v Herrigel 1991 2 SA 660(A) 678

Critically discuss with reference to statute and case law on how duties of directors are owed to the company as a whole, and whether at any point directors could abuse this power and privilege.

Executive Summary:

Directors have the privileged position of running companies without being required to put up any capital. They are generally subject only to limited restrictions in the articles of association, but are otherwise granted all of the power of the company. Throughout the years, common law and equitable duties have been developed through case law, meaning that directors were subject to numerous duties governing their actions. However it was not until the introduction of the Companies Act 2006, (“Act”) that these duties were laid out in statute in a clear and succinct way and companies and shareholders were given increased statutory measures to enforce these duties. The main driving force between this codification was to ensure that directors could be held accountable for their actions.

There has been much debate surrounding the duties laid out in the Act, and whether they go far enough to ensure that directors cannot abuse their power and privilege. S172 of the Act has been instrumental in ensuring that companies move towards a more enlightened shareholder value approach to corporate governance, by making it a requirement that the interests of various stakeholders are taken into account during decision making. But it stopped short of obliging companies to act in the best interests of stakeholders other than shareholders. Some commentators argue that the codified duties represent a great step forward in enabling companies to hold directors accountable, whereas others believe that they do not go far enough. Much of the case law on directors’ duties pre-dates the Act, suggesting that companies and/or shareholders remain reluctant or unable to enforce their rights against directors. The government has recently announced details of a new draft regulation that will increase the obligations on companies regarding the accountability of directors under s172 of the Act, by obliging certain companies to report on how they have taken the interests of stakeholders into account.

It is clear that the duties in the Act are wide-ranging and clearly laid out, but there has not been the influx of claims that was anticipated prior to its enactment. One reason for this is that in the main these duties are only enforceable by the company itself. This would mean the board of directors turning against one of their own, which could risk the reputation of the company, and its ability to attract directors in the future and is often a costly process. A new enforcement method for shareholders was also introduced in the Act, the statutory derivative claim, but it has been rarely used and appears to be a costly, ill-effective measure.

In conclusion analysis shows that the UK now has an effective framework for ensuring the accountability of directors, by virtue of the general duties laid out in the act, but that these are rarely enforced. Companies have been given the tools to ensure that directors do not abuse their powers, but they do not appear to be using these. The reasons for this are complex but, given the vast range of legislation outside of the Act that places additional obligations and responsibilities on directors, and the sometimes severe penalties for breaching this legislation, it is possible that directors are simply abusing their power less than in the past. The government has made it clear that it does not intend to legislate much more in this area, meaning that if companies want to ensure accountability of directors, it is up to them to make this happen.   

Introduction:

Prior to the enactment of the Act, there was concern that companies and shareholders were unable to hold directors accountable for their actions. The traditional fiduciary duty and duty of care were viewed as not going far enough to ensure that directors were obliged to act in the best interests of the company, and there was concern that these duties were only owed to the company itself, and not other stakeholders. In some cases, directors were abusing the power given to them by shareholders, with few consequences. This essay sets out to establish that the Act has given companies and shareholders the tools they need to ensure accountability, but that in most instances these tools are not fully utilised, meaning that directors remain free to abuse their powers, albeit with the risk of serious consequences.

Background:

All companies are required to have at least one director[1]. The term director is not defined in the Act but is described as applying to “any person occupying the position of director, by whatever name called.”[2] This definition incorporates not only those directors who have been validly appointed (de jure directors), but also de facto[3] and shadow directors[4] and recent amendments to the Act clarify that, where and to the extent possible, directors duties also apply to shadow directors.[5] A director is therefore defined by the role he performs, rather than his title.

Powers are conferred upon directors by the articles of association and, in some cases, other contractual arrangements. The model articles (which are generally adopted either in full or in part) include a section on directors’ general authority, which provides that “subject to the articles, the directors are responsible for the management of the company’s business, for which purpose they may exercise all the powers of the company”.[6] Prior to the Act, many companies adopted “Table A” articles, which included a similar provision. Therefore, unless otherwise restricted by the articles, directors have the exclusive power to manage the company, with responsibility for deciding and implementing strategy, managing the operations of the company and setting its objectives. To balance this power, directors are subject to various duties, which, until the introduction of the Act, were based on common law and fiduciary principles and viewed by many as insufficient. The duties enshrined in sections 171-177 of the Act (“General Duties”) represent significant reform in this area, providing a sole reference point for directors and giving companies the legislative power to hold them accountable.

The General Duties are based on and interpreted in the same way as common law rules and equitable principles[7] and much of the case law relating to directors’ duties pre-dates the Act. In Burns v Financial Conduct Authority[8] it was noted that “…the substantial body of existing case law in which those rules and principles have been stated, developed and refined continue to apply with undiminished authority in relation to the interpretation and application of the statutory duties”. The fact that much of the relevant case law pre-dates the Act suggests that the new enforcement powers have not been used effectively.

The General Duties

Section 171 of the Act covers the duty of a director to act in accordance with the company’s constitution and to only exercise his powers for the purpose for which they are conferred. This is known as the “proper purpose” rule and replaces the common law principle established in Balls v Strutt[9]. The leading authority on the proper purpose rule is the recent Supreme Court decision in Eclairs Group Ltd and Glengary Overseas Ltd v JKX,[10] which specified that “the proper purpose rule is not concerned with excess of power by doing an act which is beyond the scope of the instrument creating it as a matter of construction or implication. It is concerned with abuse of power, by doing acts which are within its scope but done for an improper purpose”. The Supreme Court made it clear that where directors have more than one purpose, the duty will be breached if they allow themselves to be influenced by an improper purpose. Other acts that have been found to be a breach of this duty include using powers to create new shares for the sole purpose of diluting a shareholder’s voting power and blocking a takeover bid,[11] and transferring assets from one company to another in which the individual was a director, for no consideration.[12]

Section 172 of the Act replaced the fiduciary duty to act in the best interests of the company that was first established in Smith & Fawcett[13] and is the most wide-ranging duty. It requires a director to promote the success of the company for the benefit of its members as a whole, having regard to a list of other stakeholders including the company’s employees, customers and suppliers and the likely long-term consequences of any decision. The courts confirmed in Re Southern Counties Fresh Foods[14] that the test remains subjective, meaning that the question for courts is whether the director honestly believed that his actions were in the best interests of the company.

It is important to note that s172(1) only requires directors to have regard to the matters listed in sections a-f, and does not go further. This section is viewed by some as promoting the principle of “enlightened shareholder value” and hailed as an important advance in corporate governance, because it requires directors to consider other stakeholders, even though priority is still given to the interests of the members. This is an improvement on the situation prior to the Act. It has, however, been described by critics as akin to the emperor’s new clothes, bringing little or nothing new to the table, with the situation for stakeholders (other than shareholders) being the same as prior to its enactment.[15] It is clear that the government views this duty as a priority, as is demonstrated by the recently published draft regulations[16] requiring large and medium sized companies to publish a statement annually (from 1 January 2019) explaining how their directors have complied with their obligations under s172(1) and the ways in which they have considered the factors listed in that section when performing their role (“Draft Regulations”). This will increase accountability and discussion in this area, as the information will be publically available for scrutiny by all stakeholders but does suggest that the government believes the current requirements in this area do not go far enough.    

This is the only duty that can be owed to a person other than the company, as s172(3) confirms that it is subject to any enactment or rule of law requiring directors in certain circumstances to consider or act in the interests of the creditors of the company.[17] Prior to the Act, this was already the position at common law where a company was insolvent[18], and when the solvency of the company was doubtful,[19] and this goes hand in hand with the provisions of the Insolvency Act 1986 (“IA”) relating to wrongful and fraudulent trading.

Section 173 of the Act covers the duty to exercise independent judgment. The government has made clear that this duty will not prevent directors from relying on advice from professionals as long as they decide for themselves whether to rely on such advice. It will also not be infringed by a director acting in accordance with an agreement entered into by the company that restricts the future exercise of discretion by directors or in a way authorised by the company’s constitution[20]. In practice this duty obliges a director to think for himself, meaning he is accountable for his decisions.    

Section 174 of the Act concerns the duty to exercise reasonable care, skill and diligence. The test set out in this section is a two-tier test, covering both the general knowledge, skill and experience that may reasonably be expected of a person carrying out the specific functions being carried out by the director (an objective test) and the general knowledge, skill and experience that the director has (a subjective test). The director must always demonstrate that he has acted in a way that is compatible with the objective test, but if he has any special knowledge or skills, he would need to demonstrate compliance with the subjective limb as well. This was in line with developments prior to the Act in Re D’Jan of London Limited[21], which confirmed the correct test as the two-stage test set out in the IA. Until then, the objective test set out in Re City Equitable Fire Insurance Co Ltd[22] was deemed to be the correct test.

Section 175 of the Act provides a duty to avoid a situation in which a director has, or may have, a direct or indirect interest that conflicts or may conflict with the interests of the company. This duty will not be breached if the conflict has been authorised by the other directors in advance, or if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest. The concept of a potential conflict was considered and explained in Boardman v Phipps where it was established that there must be a real sensible possibility of conflict for this duty to be infringed:[23] The fact that a conflict can be authorised by the board increases the risk that directors will not properly consider this duty.  

This duty continues after a person ceases to be a director (Act s170(2)(a)) with regards to any opportunity or property that they first became aware of when they were a director, therefore a director cannot resign from his position and subsequently take advantage of a business opportunity that he found out about through his directorship.[24]      

Section 176 of the Act sets out a duty not to accept benefits from third parties by reason of his being a director or doing (or not doing) anything as a director, replacing the fiduciary duty not to exploit the position of fiduciary for personal benefit. This duty will not be infringed if the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest.[25] This duty also continues to apply after an individual ceases to be a director and it is worth noting that the board cannot authorise this. In addition, the Bribery Act 2010, which came into force on 1 July 2011 strengthens this duty by making the acceptance or offering of a bribe a criminal offence.

Section 177 of the Act incorporates the duty to declare an interest in a proposed transaction or arrangement. The declaration must be made before the company enters into the transaction/arrangement but is not required if it cannot reasonably be regarded as likely to give rise to a conflict of interest[26]. Once declared, a director with a potential interest in a transaction is still permitted to vote (subject to the company’s articles)[27], meaning that in reality this requirement may have little effect.

Of all the General Duties, the duty in section 172 is the only one that really advanced the position of stakeholders – all of the other duties reflect the position at common law prior to the Act. The main advantage of the Act is that they are all set out in the same place and easily accessible for directors.

Other Duties

In addition to the General Duties, there are numerous other statutory requirements that directors must comply with. The IA provides that a director can be accused of wrongful trading[28] or fraudulent trading[29]. If a director is held liable for wrongful or fraudulent trading he may also be served with a disqualification order under the Company Directors Disqualification Act 1986 (“CDDA”). A liquidator or administrator is required to submit a report to the Secretary of State if the conditions for disqualification of a director appear to be satisfied, and the courts can then make a disqualification order, disqualifying the person from acting as a director or manager of a company for a maximum of fifteen years. A court can also apply for such an order if it believes the person has demonstrated “unfit conduct”, which includes fraudulent behaviour, conduct that seeks to deprive creditors of assets and failure to comply with regulatory requirements.[30] 

Directors can also be held personally liable for failure to comply with health and safety and environmental legislation, and directors of listed companies must comply with additional obligations under the Listing Rules. The Draft Regulations will also introduce additional obligations for directors.

Overall it is clear that outside of the General Duties, there are numerous other obligations that must be considered by directors when carrying out their duties.  

How are directors’ duties enforced and what are the remedies for breach?

Directors duties are owed to the company therefore in the main enforceable only by the company itself[31], although if the company’s solvency is in doubt or it is insolvent, the directors also owe duties to the company’s creditors by virtue of s172(3) and this can be enforced by the liquidator or administrator. It is therefore generally for the board to decide whether or not to pursue a claim against a director, which can raise issues, such as a fear of negative publicity for the company, a concern on the part of the other directors that they should have paid more attention to the conduct of the director in question and the costs involved with the legal action. In addition if all of the directors were complicit in the behaviour of the director, it is unlikely that they will bring a claim against themselves. The remedies available for breach or threatened breach of the General Duties are the same as were previously available under common law or equity,[32] namely injunction, restitution, accounting for profits, restoration of company property and setting aside the transaction, as well as damages. For breaches of s174 duties the most likely remedy is damages.

Dissatisfied shareholders of companies whose shares are publicly traded can choose to sell their shares and exit the company. For shareholders of private companies this can be more problematic as there are often restrictions placed on the transfers of shares. Shareholders also have the power to remove a director by ordinary resolution, however this process is not always straight forward. The Act introduced a new procedure enabling shareholders to bring a derivative action against directors in certain circumstances[33] and they also have the right to bring a claim for unfair prejudice[34]. There are however serious limitations with both. The derivative claim is brought on behalf of the company, so the shareholder would not personally benefit and the claimant has to prove that they have a prima facie case at the initial hearing, otherwise the court will refuse permission for the claim to be brought. For example in Mission Capital v Sinclair[35] an application to proceed was refused on the basis that a director acting in the best interests of the company would not proceed with the claim.  One additional barrier is cost – not only the cost involved in bringing the application but the potential for the shareholder to be required to pay the company’s costs if the application fails. Prior to its introduction, there were concerns that the derivative claim procedure would lead to an influx in claims, but this fear so far appears to be unfounded. In reality, this remedy has rarely been sought – from 1 October 2001 to 1 October 2012 only 16 cases were heard in which permission was sought to bring a claim.[36] This suggests that this procedure is not seen as an effective mechanism for shareholders to hold directors accountable for their actions and that the courts are adopting a restrictive approach when considering whether or not a claim should be allowed[37]. The s994 unfair prejudice claim can be brought by a shareholder however they must prove that the acts of the director that amounted to the breach of duties also unfairly prejudiced them. This process only benefits the shareholder themselves and is also costly, but it appears to be used more regularly that the derivative claim. Shareholders must also consider any negative publicity that these claims may bring to the company.  

Abuse of directors’ power and privilege

One of the driving forces behind the codification of the General Duties was to prevent directors from abusing their power by providing them with a clear set of rules to follow. As all the duties are now laid out in statute and easily accessible, it is clear that this objective has been achieved. There are, however, some who feel that these duties do not go far enough and that by not making directors accountable to stakeholders (other than shareholders) an opportunity has been missed to rein in their power. Nevertheless directors are human beings who dedicate their time and efforts to the management of companies, sometimes with little remuneration and it can be argued that “making directors potentially liable to an undetermined number of potential claimants may deter good and diligent people from accepting management or directional positions”.[38] A balance must be struck between keeping the role of director attractive and ensuring that directors are accountable for their actions.

The other issue to consider is enforcement. Unless enforced effectively, the General Duties will not have a great impact on governance. “The prescription of duties can educate and set out norms of conduct, but unless there is some form of effective enforcement there is, arguably, no deterrence.”[39] It can be argued that directors are more likely to behave badly if they know they are unlikely to face consequences and that, to remedy this, more companies should be using the powers given to them under the Act. However it must also be remembered that companies have to balance the commercial risk of pursuing a claim against a director (reputational risk, cost, disruption) against the potential rewards. In many cases it seems that the risks outweigh the rewards. So do directors abuse their powers and privileges? In some instances, yes. A quick analysis of recent cases brought before the courts shows that this does still happen. In March 2018 a case was brought by a liquidator against two directors who are alleged to have signed a solvency statement knowing that the company would not be able to meet its liabilities over the next three months[40] and Eclairs Group Ltd v JKX Oil and Gas plc[41] is another recent example of directors being held to have breached their general duties. More difficult to quantify, however, is the number of breaches that do not result in cases being brought to trial.    

In the UK, governance is done on a voluntary basis, by way of a code to be adhered to, on a “comply or explain” basis. If listed companies do not comply with the provisions of the UK Corporate Governance Code, they have to explain the reasons for this non-compliance. There is a clear preference for leaving companies to regulate themselves, rather than imposing statutory obligations like those found in other jurisdictions. One reason for this is because companies are run for the benefit of the shareholders who often reap great rewards through the actions of directors, therefore the government and the courts are reluctant to involve themselves too much in their running. In addition, neither the government nor the courts are experts in the area of running a company – this is the role of directors and it is arguable that they should be left to carry out this role, within the confines of the restrictions placed upon them in the articles.

In conclusion, it is clear that the scope of the General Duties themselves is not an issue – it is the effectiveness of the remedies available to companies and/or shareholders to act in the event of a breach of these duties, and a seeming unwillingness to enforce these remedies. More analysis is needed to understand the reasons for this. This leaves directors free to abuse their position, but if they choose to do so they could be faced with heavy penalties in other areas of law, and be disqualified from acting as a director. It is therefore not something that would be without sanction. Overall it is for companies and shareholders themselves to decide whether or not they want to hold directors to account – the government has made it clear that it does not intend to interfere in this area, therefore unless companies take the initiative, things will not change. The General Duties have given them the tools to ensure accountability – it is up to them how they use them.

Bibliography

Books

M Bruce (2018) Rights and duties of directors 2017/18 (London, Bloomsbury Professional) Available from https://www.bloomsburyprofessionalonline.com/view/rights_duties_directors/b-9781784514433-0000040.xml accessed on 8 July 2018.

Research Handbook on Directors’ Duties edited by Adolfo Paolini, 2015 https://ebookcentral.proquest.com/lib/bpp/reader.action?docID=1876069&query= accessed on 7 July 2018.

Journals/insight

A Keay, ‘An assessment of private enforcement actions for directors’ breaches of duty’: Civil Justice Quarterly  2014  available from https://login.westlaw.co.uk/maf/wluk/app/document?&srguid=i0ad832f10000016479675a61c09c100c&docguid=I97E955B05E2111E38747C922B0211D97&hitguid=I97E955B05E2111E38747C922B0211D97&rank=5&spos=5&epos=5&td=4000&crumb-action=append&context=23&resolvein=true accessed on 8 July 2018

A Keay, ‘The Public Enforcement of Directors’ Duties: A Normative Enquiry’: Common Law World Review 1 June 2014 available from https://www.lexisnexis.com/uk/legal/results/enhdocview.do?docLinkInd=true&ersKey=23_T27700296425&format=GNBFULL&startDocNo=1&resultsUrlKey=0_T27700303395&backKey=20_T27700303396&csi=302152&docNo=2&scrollToPosition=0 accessed on 7 July 2018

Company Directors Disqualification Act 1986 and Failed Companies: A guide to Director Disqualification published by the Insolvency Service – https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/657922/CDDA-and-failed-companies-november-2017.pdf

Company Law Newsletter 2016 – Co. L.N. 2016, 380, 1-5 – ‘Holding Directors to account in order to promote good corporate governance and protect the public from abuse of limited liability’ available from https://login.westlaw.co.uk/maf/wluk/app/document?&srguid=i0ad832f10000016479675a61c09c100c&docguid=ID74322C0CC1C11E5A863FEB6F2987947&hitguid=ID74322C0CC1C11E5A863FEB6F2987947&rank=12&spos=12&epos=12&td=4000&crumb-action=append&context=23&resolvein=true accessed on 8 July 2018.

E Lynch, ‘section 172: a ground-breaking reform of directors’ duties, or the emperor’s new clothes?’: Company Lawyer 2012 – Legislative comment. Available from  https://login.westlaw.co.uk/maf/wluk/app/document?&srguid=i0ad832f10000016479675a61c09c100c&docguid=I40B86F40B5E611E1B7C6E5F4CE7945D1&hitguid=I40B86F40B5E611E1B7C6E5F4CE7945D1&rank=15&spos=15&epos=15&td=4000&crumb-action=append&context=23&resolvein=true accessed on 8 July 2018. 

Practical Law Corporate, ‘Directors’ duties: corporate governance influences’. Available from https://uk.practicallaw.thomsonreuters.com/Document/Ib555475ce83211e398db8b09b4f043e0/View/FullText.html?navigationPath=Search%2Fv1%2Fresults%2Fnavigation%2Fi0ad62af0000001647a5608677d83549e%3FNav%3DKNOWHOW_UK%26fragmentIdentifier%3DIb555475ce83211e398db8b09b4f043e0%26startIndex%3D1%26contextData%3D%2528sc.Search%2529%26transitionType%3DSearchItem&listSource=Search&listPageSource=2acc972334a4fa489795ad0064c6a127&list=KNOWHOW_UK&rank=1&sessionScopeId=ed255a5465c4dba63ef69ab12423e52ad7a088f1a012104e156b28cce625276b&originationContext=Search+Result&transitionType=SearchItem&contextData=%28sc.Search%29&navId=81E54770939FE169A0EC85D8018E6949&comp=pluk accessed on 8 July 2018.

Practical Law Corporate, ‘Directors’ general duties under the Companies act 2006’. Available from https://uk.practicallaw.thomsonreuters.com/Document/I8abc8a251c9a11e38578f7ccc38dcbee/View/FullText.html?navigationPath=Search%2Fv1%2Fresults%2Fnavigation%2Fi0ad62af0000001647a519a927d8353f2%3FNav%3DKNOWHOW_UK%26fragmentIdentifier%3DI8abc8a251c9a11e38578f7ccc38dcbee%26startIndex%3D1%26contextData%3D%2528sc.Search%2529%26transitionType%3DSearchItem&listSource=Search&listPageSource=4eb30202395e5de67b09b3f59d9635f5&list=KNOWHOW_UK&rank=1&sessionScopeId=ed255a5465c4dba63ef69ab12423e52ad7a088f1a012104e156b28cce625276b&originationContext=Search+Result&transitionType=SearchItem&contextData=%28sc.Search%29&navId=BE64F835341B2CD4BF82D8F285B2BBE7&comp=pluk accessed on 3 July 2018.

Practical Law Restructuring and Insolvency, ‘Insolvency and considerations for directors’. Available from https://uk.practicallaw.thomsonreuters.com/Document/I8abc8a2b1c9a11e38578f7ccc38dcbee/View/FullText.html?navigationPath=Search%2Fv1%2Fresults%2Fnavigation%2Fi0ad62af0000001647a54f7c57d83545f%3FNav%3DKNOWHOW_UK%26fragmentIdentifier%3DI8abc8a2b1c9a11e38578f7ccc38dcbee%26startIndex%3D1%26contextData%3D%2528sc.Search%2529%26transitionType%3DSearchItem&listSource=Search&listPageSource=ef7e2247b9795d7e5bc4d9706eb77783&list=KNOWHOW_UK&rank=1&sessionScopeId=ed255a5465c4dba63ef69ab12423e52ad7a088f1a012104e156b28cce625276b&originationContext=Search+Result&transitionType=SearchItem&contextData=%28sc.Search%29&navId=63C914BE00A98D2B13498BBAB14DCA2B&comp=pluk accessed on 3 July 2018.

W Steel, University of Chester, ‘Directors’ statutory general duties’, Westlaw UK. Available from https://login.westlaw.co.uk/maf/wluk/app/document?&srguid=i0ad82d08000001647a6b51dc69af57fe&docguid=I1AC5730042AA11E6BBCFD56F4511DC47&hitguid=I1AC5730042AA11E6BBCFD56F4511DC47&rank=2&spos=2&epos=2&td=4000&crumb-action=append&context=21&resolvein=true accessed on 3 July 2018.

Westlaw UK, ‘Directors’ Powers and Duties’, Westlaw UK. Available from https://login.westlaw.co.uk/maf/wluk/app/document?&srguid=i0ad82d08000001647a6b51dc69af57fe&docguid=I9BDCFF00238E11E8AF109485D6FFCB62&hitguid=I9BDCFF00238E11E8AF109485D6FFCB62&rank=3&spos=3&epos=3&td=4000&crumb-action=append&context=21&resolvein=true accessed on 3 July 2018.

Z Azeez, Nabarro LLP, ‘Directors’ breach of duty’, Westlaw UK. Available from https://login.westlaw.co.uk/maf/wluk/app/document?&srguid=i0ad82d08000001647a6b51dc69af57fe&docguid=I0882E7E141E111E2B04DB1A5559F7264&hitguid=I0882E7E141E111E2B04DB1A5559F7264&rank=1&spos=1&epos=1&td=4000&crumb-action=append&context=21&resolvein=true accessed on 3 July 2018.

Cases

Balls v Strutt [1841] 66 E.R.984 1 Hare 146

Bishopsgate Investment Management Ltd (In liquidation) v Maxwell (No. 1) [1994] All E.R. 261

Boardman v Phipps [1967] 2 A.C. 46

Burns v Financial Conduct Authority [2017] EWCA Civ 2140 [65]

Colin Gwyer and Associates Ltd and another v London Wharf (Limehouse) Ltd and others [2003] BCC 885

Eclairs Group Ltd and Glengary Overseas Ltd v JKX Oil and Gas plc [2015] UKSC 71

Foss v Harbottle [1843], 67 E.R. 189

Howard Smith Ltd v Ampol Petroleum Ltd [1974] A.C.821

Industrial Development Consultants Ltd v Cooley [1972] 1 W.L.R. 443

LHR Services Limited (In liquidation) v Trew [2018] EWHC 600 (Ch)

Liquidator of West Mercia Safetywear Ltd v Dodd and another [1988] 4 BCC 30

Mission Capital plc v Sinclair [2010] 1 BCLC 304 (Ch)

Re City Equitable Fire Insurance Co Ltd [1925] Ch 407

Re D’Jan of London Limited [1993] BCC 646

Re Southern Counties Fresh Foods Ltd [2008] EWHC 2810

Smith v Fawcett, re [1942] Ch. 304

Statutes

Bribery Act 2010

Companies Act 2006

Company Directors Disqualification Act 1986

Insolvency Act 1986

The Companies (Miscellaneous Reporting) Regulations 2018, due to come into force on 1 January 2019, subject to Parliamentary approval

UK Corporate Governance Code

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[1] Companies Act s154(2) – a public company must have at least two directors

[2] Companies Act 2006, s250

[3] A person who has not been validly appointed as a director but who acts as if they are a director and is treated as such by the board

[4] Any person in accordance with whose directions or instructions the directors of the company are accustomed to act (Companies Act 2006, s251(1)).

[5] Companies Act 2006, s170(5) as substituted by the Small Business, Enterprise and Employment Act 2015

[6] Model articles for private or public companies limited by shares, s3

[7] Companies Act 2006, s170(3) and s170(4)

[8] Burns v Financial Conduct Authority [2017] EWCA Civ 2140 [65]

[9] Balls v Strutt [1841] 66 E.R.984 1 Hare 146

[10] Eclairs Group Ltd and Glengary Overseas Ltd v JKX Oil and Gas plc [2015] UKSC 71

[11] Howard Smith Ltd v Ampol Petroleum Ltd [1974] A.C.821

[12] Bishopsgate Investment Management Ltd (In liquidation) v Maxwell (No. 1) [1994] All E.R. 261

[13] Smith v Fawcett, re [1942] Ch. 304

[14] Re Southern Counties Fresh Foods Ltd [2008] EWHC 2810

[15] Company Lawyer 2012 – Legislative comment – section 172: a ground-breaking reform of directors’ duties, or the emperor’s new clothes? – Elaine Lynch – https://login.westlaw.co.uk/maf/wluk/app/document?&srguid=i0ad832f10000016479675a61c09c100c&docguid=I40B86F40B5E611E1B7C6E5F4CE7945D1&hitguid=I40B86F40B5E611E1B7C6E5F4CE7945D1&rank=15&spos=15&epos=15&td=4000&crumb-action=append&context=23&resolvein=true accessed on 8 July 2018

[16] The Companies (Miscellaneous Reporting) Regulations 2018, due to come into force on 1 January 2019, subject to Parliamentary approval

[17] Companies Act 2006, s172(3)

[18] Liquidator of West Mercia Safetywear Ltd v Dodd and another [1988] 4 BCC 30

[19] Colin Gwyer and Associates Ltd and another v London Wharf {Limehouse) Ltd and others [2003] BCC 885

[20] Companies Act 2006, s173(2)

[21] Re D’Jan of London Limited [1993] BCC 646

[22] Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 [para 428]

[23] Boardman v Phipps [1967] 2 A.C. 46 [para 124]

[24] Industrial Development Consultants Ltd v Cooley [1972] 1 W.L.R. 443

[25] Companies Act 2006 s176(4)

[26] Companies Act 2006 s177(6)(a)

[27] Companies Act 2006 explanatory note 354

[28] if it he knew or ought to have known at some point prior to an insolvent winding up or administration that there was no reasonable prospect of the company avoiding liquidation but did not minimise the potential impact for creditors

[29] Fraudulent trading requires the business to be carried on with the intention of defrauding creditors (or for another fraudulent purpose) in the period leading up to the insolvent winding up or administration.

[30] Company Directors Disqualification Act 1986 and Failed Companies: A guide to Director Disqualification published by the Insolvency Service – https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/657922/CDDA-and-failed-companies-november-2017.pdf

[31] Established in Foss v Harbottle [1843], 67 E.R. 189

[32] Companies Act 2006, s178

[33] A statutory derivative  claim can be brought by members under Companies Act 2006 s11

[34] Companies Act 2006, s994

[35] Mission Capital plc v Sinclair [2010] 1 BCLC 304 (Ch)

[36] Civil Justice Quarterly  2014 C.J.Q. 2014, 33(1), 76-92 – An assessment of private enforcement actions for directors’ breaches of duty – Andrew Keay https://login.westlaw.co.uk/maf/wluk/app/document?&srguid=i0ad832f10000016479675a61c09c100c&docguid=I97E955B05E2111E38747C922B0211D97&hitguid=I97E955B05E2111E38747C922B0211D97&rank=5&spos=5&epos=5&td=4000&crumb-action=append&context=23&resolvein=true accessed 8 July 2018

[37] M Bruce (2018) Rights and duties of directors 2017/18 (London, Bloomsbury Professional) Available from: https://www.bloomsburyprofessionalonline.com/view/rights_duties_directors/b-9781784514433-0000040.xml accessed on 8 July 2018.

[38] Research Handbook on Directors’ Duties edited by Adolfo Paolini, 2015 https://ebookcentral.proquest.com/lib/bpp/reader.action?docID=1876069&query= accessed on 7 July 2018.

[39] Civil Justice Quarterly  2014 C.J.Q. 2014, 33(1), 76-92 – An assessment of private enforcement actions for directors’ breaches of duty – Andrew Keay https://login.westlaw.co.uk/maf/wluk/app/document?&srguid=i0ad832f10000016479675a61c09c100c&docguid=I97E955B05E2111E38747C922B0211D97&hitguid=I97E955B05E2111E38747C922B0211D97&rank=5&spos=5&epos=5&td=4000&crumb-action=append&context=23&resolvein=true accessed 8 July 2018

[40] LHR Services Limited (In liquidation) v Trew [2018] EWHC 600 (Ch)

[41] Eclairs Group Ltd and Glengary Overseas Ltd v JKX Oil and Gas plc [2015] UKSC 71