Know your duties – Directors’ liabilities beyond Companies Act

The UK Companies Act 2006 provides for the general directors’ duties. These are:

• to act within their powers;
• to promote the success of the company for the benefit of its members as a whole, having regard to a non-exhaustive list of factors;
• to exercise independent judgement;
• to exercise reasonable care, skill and diligence;
• to avoid conflicts of interest;
• not to accept benefits from third parties;
• to declare certain interests they have in a proposed transaction or arrangement with the company.

These duties are rather broad and owed to the company itself. Thus, it is the company who will have to bring claims in case of breaches of these duties which they might be reluctant. For mere commercial misjudgement the directors will generally not be liable. However, criminal offences and liabilities of directors, which are beyond the general director duties, and which can be claimed by third parties are increasing. Examples are in particular potential liabilities for health and safety if risk assessments or safety checks have not been caried out or the increasing liabilities of directors for failures to prevent. Such liabilities for failures to prevent are e.g. failure to prevent bribery under the UK Bribery Act 2010, failure to prevent the facilitation of tax evasion under the Criminal Finances Act 2017 or in the failure to prevent fraud under the Economic Crime and Corporate Transparency Act 2023 for which further guidelines will have to be published. Directors should make sure that their company has the right structures in place to identify what their duties are and mitigate potential issues early on to limit liability where possible. For expert corporate governance law advice, please contact us to speak to a member of our Corporate Governance Team.