In order to establish whether there has been any misfeasance by a director of a company it is important to understand the nature of a director’s duties. Under the Companies Act 2006 directors are under a duty to:
- act within their powers
- promote the success of the Company
- exercise independent judgement
- exercise reasonable care, skill and diligence
- avoid conflicts of interest
- not accept benefits from third parties
- declare any interest in proposed transactions
Of particular importance in this area is the duty to exercise reasonable care, skill and diligence. This duty imposes an objective test based on the ‘general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the Company’ and a more subjective test based on ‘the general knowledge, skill and experience that the director has’. A more experienced director will be under a higher duty than a first time director with little or no business experience.
This test is similar to the test imposed by the Insolvency Act 1986 in relation to wrongful trading, thus bringing into line various actions that can lie against a director.
Dorothy Hatfield, Partner firstname.lastname@example.org / Alastair Dunn, Partner email@example.com / T. 0141 221 8012