Part 8 Directors, their duties and powers
Every company must have at least one director who is a natural person [Note 1]. A private company must have at least one director [Note 2] whilst a public company must have at least two directors [Note 3]. A natural person can be a corporate sole, for example the Lord Mayor of London or someone appointed by virtue of holding an office [Note 4]. Once a natural person as been appointed as a director there is no limit to the number of corporations which can be appointed as directors. A natural director must be 16 years or older [Note 5], although the Secretary of State has the power to waive this requirement [Note 6]. There are a number of types of director, which are described in paragraphs 75.78 to 75.84.
A de jure director is a director who is formally appointed and registered as a director with the registrar of companies.
A de facto director is not formally appointed but carries out all the duties of and makes decisions as a director. He may also sign company documents and be treated as a director by the other directors.
A shadow director is a person whose instructions and decisions the other directors accept and implement unlike a de facto director he may not carry out those actions himself [Note 7]. A shadow director often acts behind the scenes, which may be because there is a reason why they cannot be formally appointed.
The major differences between a de facto director and a shadow director are outlined in the official transcript of Ultraframe (UK) Ltd v Fielding and others. The relevant paragraphs are numbered 1254 to 1263. A person may be both a de facto and a shadow director at the same time. Whether a person who was appointed a director of a company which was a corporate director of another company could be considered a de facto director of the second company was analysed in a more recent case, Revenue and Customs Commissioners v Holland and another  1 W.L.R. 2793.
A nominee director is usually nominated by a shareholder and may be a de jure or de facto director. A shareholder, or other person or body, may appoint a nominee director to represent their interest on the board of directors. Such an appointment, if not a de jure director, would allow the shareholder, or other person or body, to change their nominee without the need to file details with the registrar of companies. However, a nominee director, whilst allowed to take into account the interests of his/her nominator, must act in the best interests of the company [Note 8].
A non-executive director is usually appointed for some specific expertise, often works part-time and questions the decisions of the executive director(s).
An executive director is responsible for the day to day running of the company. A managing director is a position created and filled by the board of directors. The managing director is the most senior position in the company and is generally responsible for its day to day management.
The duties of a director are determined by statute, common law, the constitution of the company, i.e. its articles of association, contracts of employment or service agreements and the decisions of shareholders. The duties of a director as determined by common law (fiduciary duties) include acting in good faith and in the best interest of the company as a whole. A director has a duty to ensure the company acts as a separate legal entity and not just for the benefit of the members. The director must exercise his/her powers for the proper purpose, e.g. to issue shares to raise capital rather than to avoid a takeover. A director should avoid conflicts of interest. The director must not place themselves in a position where his/her personal interest conflicts with their responsibility to the company. For example, depriving a company of an asset or resigning as a director to take advantage of an opportunity arising from their former directorship. A director is also under a duty not to make a secret profit or to misapply company property. A director must manage the company in accordance with its constitution and the relevant statute.
The company can bring a claim in the court against a director who has breached his/her fiduciary duty if it can show that it has suffered some loss, or if the director has made a personal profit. The court may order any personal profit made by a director to be repaid to the company. A contract or other arrangement entered into by the company where the director has been in breach of his/her duty can be declared void, although the company may ratify the contract or arrangement. The company may also obtain an injunction to stop the director carrying out or continuing with the breach, seek damages by way of compensation where the director has been negligent, or seek restoration of the company’s property or the rescission of a contract where the director has an undisclosed interest.
The official receiver when investigating the affairs of the company pursuant to section 132 of the Insolvency Act 1986 should be aware of any potential asset realisations that may be available as a result of a director or directors breaching their fiduciary duties.
The official receiver should be aware that a breach of duty by a director that results in an asset realisation may also constitute misconduct under the provisions of the Company Directors Disqualification Act 1986.
The Companies Act 2006 introduced a statutory statement of directors’ duties. These statutory provisions are divided into a number of general duties (see paragraphs 75.90 to 75.99) together with more specific duties ( see paragraphs 75.102 to 75.117). The general duties of the director are owed to the company and are based on certain common law rules and equitable principles. The general rules apply equally to shadow directors [Note 9]. The Companies Act 2006 is not prescriptive and allows for the inclusion of additional common law rules and case law [Note 10]. The Act reinforces the view that a director’s duties are to the company and not directly to others, for example, shareholders.
The directors are under a duty to act in such a way as to promote the success of the company for the benefit of its members as a whole [Note 11]. In achieving this objective the directors should consider the likely long term consequences of any decision, the interests of employees, the company’s business relationships with suppliers, customers and others, the effect of the company’s business on the community and the environment, the need to maintain a reputation for high business standards and the need to act fairly as between members of the company [Note 12]. The Companies Act 2006 is not exhaustive and additional matters the directors have to consider when promoting the success of the company may be added in the future.
If a director knew or ought to have known before the commencement of the winding up that there was no reasonable prospect that the company would avoid going into insolvent liquidation [Note 13] then the duty to promote the success of the company is modified to ensure the company considers or acts in the interest of creditors [Note 14]. For further information as to what constitutes wrongful trading and the directors liability see paragraphs 31.4B.69 and 31.4B.70.
A director must exercise their own judgment, independently and in the interests of the company. This section of the Act is an example of the general duty to act in good faith (see paragraph 75.85 ) [Note 15]. It will usually be a breach of duty for a director to act on the instructions of some other person unless the director showed they exercised their own judgement in following the instructions. This duty applies to a director appointed by a third party as a nominee to ensure they do not put the interests of the third party above those of the company. It does not preclude a director entering into a contract authorised by the company’s constitution [Note 16]. A director can enter into an agreement that restricts the future exercise of discretion by the directors [Note 17]. In Fulham Football Club Ltd v Cabra Estates plc  B.C.C. 863 the directors signed an agreement to develop the football ground and gave an undertaking that Fulham Football Club Ltd would not oppose the development at a later date or support a compulsory purchase order. It was held that the directors had not improperly restricted the future exercise of their discretion.
The statutory duty to exercise reasonable care, skill and diligence [Note 18] was a common law requirement subject to the test of reasonableness. However the test was, at least in part, subjective. The Companies Act 2006 seeks to rectify this by expecting a director to display the care, skill and diligence exercised by a reasonably diligent person carrying out the same functions. The Act also takes into account the general knowledge, skill and experience that he/she possesses [Note 19]. A director with more experience, skills and knowledge will need to exercise greater levels of care, skill and diligence to meet the standard.
Under common law a conflict of interest is defined as being where someone holding a fiduciary position enters into an engagement “in which he has, or can have a personal interest conflicting, or which possibly may conflict with the interests of those whom he is bound to protect” [Note 20]. The above definition is included in the Companies Act 2006 [Note 21], and is applied, in particular, to the exploitation of any property, information or opportunity. A conflict of interest only arises where it could be reasonably foreseen [Note 22]. This duty also applies where the company cannot take advantage of such property, information or opportunity [Note 23]. The duty does not apply to transactions or arrangements with the company as these are dealt with in other sections, see paragraphs 75.98 and 75.99 [Note 24].
In business conflicts of interest arise and there is provision within the Companies Act 2006 for dealing with them. Where the company is a private company a director can disclose the potential conflict of interest to his/her fellow directors, who may then authorise the transaction(s). However, a company may remove this right from the directors by adding a suitable clause to the articles of association [Note 25]. In a public company a potential conflict of interest can be referred to the board of directors if, and only if, there is a specific provision in its constitution devolving this authority to the board of directors [Note 26]. At a meeting to consider a possible conflict of interest the relevant director and any other interested directors should not count in numbers necessary to achieve a quorum. The interested directors, may vote on the conflict of interest, but there must be a majority for the decision, excluding their votes [Note 27]. Approval by the board of directors cannot be set aside by any common law rule or equitable principle requiring the approval of the company in general meeting [Note 28].
If there are no, or insufficient, independent directors or the directors are unable to resolve a conflict of interest because of the company’s constitution then a general meeting should be held. The general meeting can approve any transaction or arrangement that a director has disclosed as a potential conflict of interest [Note 29].
A director is accountable for any undisclosed profit obtained by virtue of his/her position as a director, the so-called “secret profit rule”. The undisclosed profit includes benefits taken in good faith as well as bribes and other underhand payments. The statutory duty not to accept benefits from third parties under the Companies Act 2006 is restricted to payments or benefits received being a director or doing or not doing anything as a director [Note 30]. A third party includes associated corporate bodies, a person acting on behalf of the company or an associated corporate body. An associated corporate body is the company’s holding company, subsidiary company or a fellow subsidiary of the same holding company [Note 31]. A director can only breach this duty, i.e. the acceptance of a benefit from a third party, if there is also a conflict of interest [Note 32]. Given the similarities between this duty and the duty to avoid conflicts of interest it is important to note that there is no provision for authorisation by the board of directors. Any sanction given to a director for a potential breach of this duty must be given by a general meeting of the company unless there is a suitable provision in the articles of association.
A director who has an interest, either directly or indirectly, in a proposed transaction or arrangement with the company must declare the nature and extent of that interest to the other directors [Note 33]. The director does not have to be a party to the transaction or arrangement for this duty to apply as the interest may be direct or indirect. The declaration of interest may be made by a notice in writing [Note 34], by a general notice [Note 35] or at a meeting of directors [Note 36]. The declaration of interest must be made before the company enters into the transaction or arrangement [Note 37]. The declaration of interest must be complete, if it is not, or becomes incomplete, a further declaration must be made [Note 38]. A declaration of interest must be made where the director is aware, or ought to be aware, of the transaction or arrangement in which he/she has an interest [Note 39].
There are a number of instances when a director is not required to declare an interest in a proposed transaction or arrangement, these include where:
The civil consequences of a breach (or threatened breach) of the director’s statutory duties are the same as under the principles of common law and equity [Note 43]. The duties, with the exception of section 174 (the duty to exercise reasonable care, skill or diligence) which is not considered a fiduciary duty, are enforceable in the same way as any other fiduciary duty [Note 44]. The remedies for a breach of fiduciary duty may include damages or compensation where the company has suffered a loss, restoration of the company’s property, a director accounting for any profits he/she has made, and the rescission of any contract where the director failed to disclose an interest.
The general directors’ duties apply despite any other enactment or rule of law unless there is an express or implied exception [Note 45]. Section 247 of the Companies Act 2006, for example, allows the directors to make provision for the company’s employees on the cessation or transfer of its business, even where this constitutes a breach of the general duty to promote its success.
In addition to a director’s general duties the Companies Act 2006 introduces a number of specific statutory duties. A number of statutory duties under the provisions of the Companies Act 1985 have been repealed including the prohibition on tax free payments to directors, the requirement to keep a directors’ register of interests and dealing in share options.
A director is required to declare to the other directors the nature and extent of any interest, either direct or indirect, they may have in an existing transaction or arrangement entered into by the company [Note 46]. The director does not have to be a party to the existing transaction or arrangement for the duty to apply as he/she may have an indirect interest. The interest must, however, be regarded by a reasonable person as likely to give rise to a conflict of interest [Note 47]. The declaration should be made as soon as is reasonably practicable and a delay does not negate the need to make it [Note 48]. The declaration can be made at a meeting of directors, by notice in writing, as per section 184 of the Companies Act 2006, or by a general notice as per section 185 of that Act [Note 49].
There is no requirement to declare an interest if the interest has already been declared, the other directors are already aware of it, the other directors ought to have know about it, it concerns the director’s service contract [Note 50] or where the transaction or arrangement is subsequently ratified by the board of directors despite the failure of the director to declare his/her interest in it [Note 51]. A director who fails to declare an interest in an existing transaction or arrangement commits an offence and if convicted can be fined [Note 52]. This duty does not apply to a director of a private company where they are the sole director. A shadow director must give notice in writing to the other directors in accordance with section 184 of the Companies Act 2006 [Note 53].
Some companies require the appointment of more than one director, either because it is a public company or its constitution requires the appointment of two or more directors. If such a company temporarily has only one director who is required to declare an interest he/she should record the nature and extent of his/her interest in any transaction entered into by the company and this is deemed to be a part of the next meeting of directors where it must be minuted [Note 54].
Any service contract between a director and the company exceeding two years requires the agreement by resolution of the members [Note 55]. A service contract is entered into when a director undertakes to personally perform services for the company or a subsidiary. The service contract also covers services performed by a third party on behalf of the director to the company or its subsidiary [Note 56]. The service contract is read to include the ordinary duties of a director [Note 57]. A company must keep a copy of the service contracts (or memoranda of their terms where the contracts are not in writing) for inspection, usually at the company's registered office, for a period of at least one year from the date of termination or expiry of the contracts (regardless of the length of the term of the contracts or whether they are terminable within 12 months) [Note 58].
If the company agrees to provide a service contract in excess of two years to a director without the approval of its members the contract is void to the extent of the contravention i.e. in respect of the period in excess of 2 years and the company is entitled to terminate the contract at any time by giving reasonable notice [Note 59].
If the company buys or sells a non-cash asset (see Section 1163 of the Companies Act 2006) of £100,000 or 10% of its net assets from or to a director of the company, a director of its holding company, a person connected with a director of the company or a person connected with a director of its holding company, then the transaction must be approved by resolution of the members or is conditional on such approval being obtained. Approval is not required if the value of the asset is less than £5,000 [Note 60]. A purchase or sale may be approved retrospectively if the resolution of members takes place within a reasonable period [Note 61]. A company that fails to obtain the approval of members will not be subject to any liability arising from the failure [Note 62]. Companies being wound up or in administration do not have to obtain members approval [Note 63].
Any transaction or arrangement entered into by the company which is not approved by the members can be avoided by the company unless restitution is no longer possible, the company has been indemnified for the loss by another person or a person, who is not party to the arrangement, acquired the rights in good faith, for value and without notice of the contravention [Note 64]. Any director of the company or holding company who is a party to a transaction or arrangement entered into without the agreement of the members, or any person connected with said directors, is liable to account to the company for any gain that he/she has directly or indirectly made and to indemnify the company for any loss or damage resulting from the arrangement or transaction [Note 65].
A company may not make a loan to its director or directors or a director(s) of its holding company nor give a guarantee or provide security in connection with a loan made by a third party to such a director, unless the transaction has been approved by a resolution of the company and, if applicable, the holding company. Notice must be given to members setting out the nature of the transaction, the amount and purpose of the loan and the extent of the company’s liability under any transaction related to the loan [Note 66].
Members approval is not required if:
A quasi-loan is a transaction whereby a creditor agrees to pay (or otherwise pays) a sum for the borrower, or agrees to reimburse, or reimburses expenditure incurred by another party on behalf of the borrower, where the borrower (or a person on his/her behalf) pays or becomes indebted to the creditor. The Companies Act 2006 when referring to a person to whom a quasi-loan is made is referring to the borrower [Note 71].
The members of a public company, or a company associated with a public company must approve, by resolution, a quasi-loan to a director or a director of its holding company. The members must also approve by resolution the company guaranteeing or providing security to a third party who makes a quasi-loan to such a director. If the director is a director of the company’s holding company the transaction must also be approved by the members of the holding company. The company should inform the members of the amount and purpose of the quasi-loan, the nature of the transaction and the extent of the company’s liability under any transaction connected with the quasi-loan [Note 72]. The same exemptions apply to quasi-loans as applied to directors’ loans, see paragraph 75.111.
The members of a public company, or a company associated with a public company, must approve, by resolution, a loan or quasi-loan, a guarantee or provision of security to a third party by the company in respect of a loan or quasi-loan made to a person connected with a director or a director of its holding company. If the person is connected to a director who is a director of the company’s holding company the transaction must also be approved by the members of the holding company [Note 73]. The same exemptions apply to loans and quasi-loans to persons connected with the directors as applied to directors’ loans, see paragraph 75.111.
A credit transaction is one in which a creditor supplies goods or sells land under a hire purchase or conditional sale agreement,; leases or hires land or goods in return for periodic payments or otherwise disposes of land or supplies goods or services where payment is deferred. The person benefitting from a credit transaction is understood to be the person to whom goods, land or services are supplied, sold, leased, hired or otherwise disposed of under the transaction [Note 74].
The members of a public company or a company associated with a public company, must approve, by resolution, a credit transaction or the provision of a guarantee or security in connection with a credit transaction, for the benefit of a director, a director of its holding company or a person connected with such a director. If the person is a director of the company’s holding company, or is connected to a director who is a director of the company’s holding company the transaction must also be approved by the members of the holding company. The same exemptions apply to credit transactions as applied to directors’ loans, see paragraph 75.111 [Note 75].
A company cannot take part in any arrangement in which another person enters into a transaction in respect of a director’s loan (see paragraph 75.110), a quasi-loan (see paragraph 75.112), a loan or quasi-loan to a person connected to a director (see paragraph 75.114) or a credit arrangement (see paragraph 75.115), that had it been entered into by the company would have required approval by a resolution of its members [Note 76]. This provision includes the circumstances where members of a holding company are required to grant approval [Note 77].
If a company enters into a transaction or arrangement in respect of a director’s loan, a quasi-loan, a loan or quasi-loan to a person connected to a director, a credit arrangement or some other arrangement (see paragraphs 75.110 to 75.117) which has not been approved by the members, by resolution, it may be voidable by the company. It may not be possible to void the transaction or arrangement where the return of the monies or asset is no longer possible, the company has been indemnified for any loss or damage or if the rights are acquired in good faith, for value by a person who was not a party to the transaction or arrangement and was unaware of the contravention [Note 78].
The company can require
to account for any direct, or indirect, gain, and, to, either, jointly or severally, indemnify the company for any loss or damage resulting from such a transaction or arrangement [Note 79]. A third party who took all reasonable steps to secure the company’s compliance would not be liable to indemnify the company [Note 80]. Nor would they be liable if they were unaware of the circumstances surrounding the contravention [Note 81].
Any payments to directors or former directors to compensate them for loss of office requires approval by resolution by the company’s members, or, if appropriate, by its members and the members of its holding company [Note 82]. This includes compensation for ceasing to be a director, compensation for losing any other office or employment with the company or a subsidiary of the company. Compensation may include benefits other than cash [Note 83] and any payments made because of retirement. The loss of employment, or retirement from employment, must be in respect of the management of the company [Note 84]. Any payments made to a person connected to a director, to a person at the direction of the director, or for the benefit of a director or person connected with the director will be treated as a payment to the director [Note 85].
A payment for loss of office to a director, or someone connected to the director, by any person resulting from a transfer of the whole or any part of the business or property of the company must be approved by a resolution of the members of the company, or if appropriate, by the members of the company and its holding company [Note 86].
A payment for loss of office to a director, or someone connected to the director, by any person in connection with the transfer of shares in the company must be approved by resolution of the members of the company, or if appropriate, by the relevant shareholders of the company and its holding company [Note 87]. The relevant shareholders are holders of the shares to which the bid relates plus holders of shares in the same class as these shares [Note 88]. Neither the person making the offer, nor any associate of them, is entitled to vote on the resolution but they may attend the meeting and speak on the resolution [Note 89]. If the meeting is adjourned because it fails to attract a quorum and the adjourned meeting is also inquorate, the payment is deemed to have been agreed [Note 90].
A director may receive a payment for the loss of office after a transfer of undertaking, property or shares, which includes monies paid for his/her shares. If the director receives monies in excess of the value of the shares he/she holds it will be treated as a payment for loss of office. The same applies to any valuable consideration in excess of the value of the shares given to the director by a person other than the company [Note 91].
The approval of members is not required to pay an existing legal obligation, to pay damages arising from a breach of a legal obligation, to agree a settlement or compromise arising from a claim concerned with the termination of a person’s office or employment or by way of pension for past services [Note 92]. A legal obligation is any obligation of the company, or any corporate body associated with it, that did not, either directly or indirectly, result in a payment for loss of office or the transfer of any undertaking, property or shares [Note 93]. The approval of members is not required for a payment, or number of payments, that do not exceed £200 in total [Note 94].
If a company makes a payment to a director or a person connected with a director (see paragraph 75.120), without the approval of members, the monies or property are held by the recipient on trust for the company making the payment. Any directors who authorise such a payment are jointly and severally liable to indemnify the company for any loss resulting from it [Note 95].
Any payment made from the transfer of the whole, or part of, the undertaking or property of the company (see paragraph 75.121) without the approval of members is held, by the recipient, on trust for the company whose undertaking or property was, or is to be, transferred [Note 96]. If a payment is made as a result of a share transfer (see paragraph 75.122) without the approval of members it is held by the recipient on trust for persons who sold their shares as a result of the offer. Any expenses incurred in distributing the payment to the relevant shareholders are borne by the recipient [Note 97]. Any directors who authorise a payment in connection with the transfer of the whole or part of the company’s undertaking, or with the sale of its shares, will not be jointly and severally liable for any loss resulting from it [Note 98].
A shadow director is to be treated as a director in respect of the provisions relating to director’s service contracts (see paragraph 75.106), property transactions (see paragraph 75.108), loans, etc (see paragraph 75.110). and payments for loss of office (see paragraph 75.120) [Note 99]. The provisions regarding loss of office as a director do not apply to shadow directors [Note 100].
Where a limited company with one member, who is also a director, enters into a contract with that person which is not in the ordinary course of business, it must be in writing, set out in a written memorandum, or recorded in the minutes of the first directors’ meeting following the contract [Note 101]. If the company fails to comply with this requirement an offence is committed by every officer of the company who is in default [Note 102]. A person found guilty of this offence is liable on summary conviction to a fine [Note 103]. A shadow director is to be treated as a director for the purposes of this section [Note 104]. A failure to comply with this requirement does not affect the validity of the contract [Note 105].
A company is prohibited from including provisions either in the articles of association or elsewhere, that attempt to exempt a director from any liability arising from negligence, default, breach of duty or breach of trust [Note 106]. A company cannot provide an indemnity for a director of the company, or an associated company, for any liability caused by negligence, default, breach of duty or breach of trust unless it is covered by insurance, third party insurance or an indemnity clause in a qualifying pension scheme [Note 107].
A company, may by a decision of its members’ ratify conduct of a director amounting to negligence, default, breach of duty or breach of trust. The majority to ratify the conduct of the director must not include the votes of the director or any connected person. If the vote is taken by way of a written resolution the director and any connected persons may not take part in the written resolution procedure. If the vote is to be taken at a meeting those members whose votes are to be disregarded may still attend and take part in the discussion. Although the members’ votes will be disregarded their attendance will count towards the quorum necessary for the meeting [Note 108].
If during proceedings against an officer of the company, or a person employed by the company, as an auditor, for negligence, default, breach of duty or breach of trust the court may, if it believes the person acted honestly and reasonably, relieve him/her either wholly, or in part, from liability on such terms as it thinks fit [Note 109]. An officer of the company, or a person employed by the company as an auditor, may apply to the court for relief if they believe a claim in respect of negligence, default, breach of duty or breach of trust is to be made. The court will consider the application as if it was hearing proceedings against him/her for negligence, default, breach of duty or breach of trust [Note 110].
A company is able to purchase insurance for its directors, or the directors of an associated company, against any liability arising from any negligence, default, breach of duty or breach of trust by them in relation to the company of which they are a director [Note 111].
A company is permitted to provide third party indemnity against a liability incurred by a director to a person other than the company or an associated company [Note 112]. The indemnity must not cover criminal fines, penalties imposed by regulatory bodies (such as the Financial Services Authority), the defence costs of criminal proceedings where the director is found guilty, the defence costs of civil proceedings successfully brought against the director by the company or an associated company or the costs of unsuccessful applications by the director for relief [Note 113]. An indemnity that complies with these conditions is called a qualifying third party indemnity provision [Note 114].
A company is permitted to indemnify a director of a company acting as a trustee of an occupational pension scheme against liability incurred in connection with the company’s activities as trustee of the scheme [Note 115]. The indemnity must not cover criminal fines, penalties imposed by a regulatory authority in respect of non-compliance with a regulatory requirement or liabilities incurred by the director in defending criminal proceedings in which he is convicted [Note 116]. An indemnity that complies with these conditions is called a qualifying pension scheme indemnity provision [Note 117].
A qualifying indemnity provision benefitting one or more directors must be disclosed in the directors’ report for the period to which the report relates. Where the director is an officer of one company but the qualifying indemnity provision is provided by an associated company, then it must be disclosed in the directors' reports of both companies [Note 118].
A company must keep a copy of all indemnity provisions, or a written memorandum of their terms, available for inspection at its registered office or at another specified address. The registrar of companies has to be informed of the relevant address, if different from the registered office. Failure to comply with these requirements for a period of 14 days or more is an offence. Every officer guilty of failing to meet these requirements is liable on summary conviction to a fine and a daily default fee thereafter [Note 119]. A member of the company can inspect the copy or memorandum without charge. If they require a copy it must be supplied within 7 days of the request being received and the company may charge a fee for providing the copy. If an inspection is refused or a copy or memorandum is not supplied within the relevant timescale every officer who is in default has committed an offence and is liable on summary conviction to a fine with a daily default fine thereafter. A court may order an immediate inspection or may direct the company to supply a copy to the person requesting it [Note 120].
A director is accountable to the company for any loss suffered as a result of an untrue or misleading statement or omission required by the Companies Act 2006 in the directors’ report, the directors’ remuneration report and the summary financial statement, insofar as it is derived from either of those reports. The director will be liable if he/she knew the statement was, either untrue or misleading, he/she was reckless as to whether it was true or misleading, or he/she knew the omission to be a dishonest concealment of a material fact. The director may also have committed a criminal offence and may be liable for further civil penalties. This section does not create a liability upon the director to anyone other than the company, whether such liability results in a civil remedy, or the rescission or repudiation of an agreement [Note 121]. To pursue a director for compensation the official receiver, on behalf of the company, would need to establish that the false or misleading statement and the omission and loss were linked.
The directors of a company are responsible for exercising all the powers of the company. The extent of these powers are defined by the Companies Act 2006 and may be amended by the articles of association. For example the articles of association may restrict the borrowing powers of the directors. The directors generally act as a board but the articles of association may permit the board to delegate powers to individual directors. In companies with a number of directors it is not unusual for an individual directors to carry out many of the company’s activities without reference to the other directors. The Companies Act 2006 also includes one specific statutory power, which allows the company to make provision for its employees, see paragraph 75.139.
Directors have the power to make provision for the benefit of employees (including former employees) of the company, or its subsidiaries, on the cessation or transfer of the whole or part of the business of the company, or its subsidiary. The directors do not have the power to make payments to themselves, former directors or shadow directors unless authorised by resolution of the company. Any payment must be made before the commencement of any winding-up of the company and out of the profits available for dividend [Note 122].