What are The Duties & Responsibilities of a Director

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Directors face many challenges and obligations, arising from many sources. Most of these are legal obligations, such as those contained within (plus many others):

  • The Companies Act 2006, CA 2006; especially the 7 statutory director duties, collectively known as the General Duties. The General Duties apply to all Director actions and decisions. They are effectively principles which directors must be adhere to at all times
  • Health and Safety legislation
  • Money Laundering laws
  • The Bribery Act and the Criminal Finances Act, which covers tax evasion. These are both unusual in that they have created an offence of “Failing to Prevent…”and they have reversed the normal presumption of innocence to a presumption of guilt
  • Other laws concerning Economic Crimes
  • Climate related legislation

General Duties of Directors

The 7 General Duties of Directors under the Companies Acts 2006 are:

  • They must always Act Within Their Powers. This would include only using their powers for the benefit of the company
  • They have a duty at all times to Promote The Success of The Company for the benefit of the shareholders as a whole. Taking into account the interests of all of the Stakeholders (employees, customers, suppliers, climate community and the economy) and the consequences of the decisions in the long term
  • They must exercise Independent Judgment in all matters. This means that every director must make up their own mind on every issue. They can take expert advice, but they must not simply accept the opinions of their fellow directors, even from those with relevant specialist expertise
  • They must exercise Reasonable Care, Skill and Diligence at all times. Due to a lack of actual experience or qualifications, a Director may be unable to deliver the standards that might reasonably be expected of the Director; even if they are performing to the best of their abilities. These duties naturally flow into each other. For example, it would be difficult to exercise independent judgment regarding the year end Financial Accounts, without first understanding accounting policies and Generally Accepted Accounting Practice (GAAP). This initial homework would be exercising Reasonable Care, Skill and diligence
  • They have a duty to Avoid Conflicts of Interest, wherever possible. These could arise from multiple directorships, e.g. if you are also on the board of a competitor/customer/supplier, or have a financial stake in any of these. For this purpose, directors are deemed to be connected to their brothers and sisters
  • They must not Accept Benefits from Third Parties unless they are of minor commercial value and unlikely to influence the Director
  • They must Declare Interests in any Proposed Transaction or Arrangement and steps should be taken to minimise the impact of any Conflicts of Interest that cannot be avoided

The implications of following the general duties in every aspect of their work would require all Directors, at least in part, to develop a wide range of knowledge across a host of areas, that prior to becoming Directors they may have previously considered to be specialist areas that they did not need to know about. Failure to recognise the need to move beyond being a purely functional specialist to becoming actively involved in a broad range of decisions whilst exercising Independent Judgment and taking Reasonable Care, Skill and Diligence could cause legal problems and might attract personal liabilities for the Director.

The area in which Directors are most often caught out is connected to the finances of the company and commonly related to insolvency. 1200 Directors are usually disqualified from being directors annually, due to shortcomings identified by the Liquidator. The most common defence historically put forward by directors was along the lines of, “I did not realise that was our responsibility.” For this reason there is a standard Statement of of Director Responsibilities, which sets out the responsibilities of the Directors for the company’s financial affairs.

Please click here for more information about the Financial Responsibilities of Directors under the Companies Act.

There are other rules and regulations that may not be legally binding upon all directors; but may have to be followed by some directors, depending upon the particular circumstances of their companies.

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Please click here to see the courses we offer as internal single company courses, at a date and location convenient for your Board of Directors

Our scheduled courses can also be run as in-house courses on a fixed fee basis, at your offices or at a convenient venue. We could also customise the courses to design and develop specific material to meet any special requirements you may have. For any such bespoke course requests please contact us with the details of your requirements.

Please click here to see the scheduled courses we provide for “Director, Duties, Roles and Responsibilities”

Please click here to see the scheduled finance courses we offer to all directors, “Finance for Non-Finance Directors”, no previous financial knowledge required

UK Corporate Governance Code 2024

The latest version of the code is the UK Corporate Governance Code 2024. The 2024 Code will apply to financial years beginning on or after 1 January 2025. 

The  relevant version of the UK Corporate Governance Code for financial years beginning on or before 31 December 2024 is the UK Corporate Governance Code 2018.

The UK Corporate Governance Code (previously the Combined Code) is a formal document, which sets out Best Practice standards for all companies.  The code is published by the Financial Reporting Council (FRC).

The Definition of UK Corporate Governance

Corporate Governance is the system by which companies are directed and controlled.

This definition originated in the first version of the UK Corporate Governance Code (the Code), which was published in 1992 by the
Cadbury Committee. That same definition was adopted in a further review commissioned by the Secretary of State for Trade and Industry in 2003. That review was chaired by Sir Derek Higgs and its final report was entitled “Review of the Role and Effectiveness of Non-Executive Directors” and later came to be known as the “Higgs Report” Much of the wording from that original 2003 report can still be seen in the latest version; the UK Corporate Governance Code 2024.

The code is published by the Financial Reporting Council (FRC). The  relevant version of the code for financial years beginning on or before 31 December 2024 is the UK Corporate Governance Code 2018. The UK Corporate Governance Code 2024 will apply to financial years beginning on or after 1 January 2025.