To What Extent Does a Director's Duty Under Section 175 Companies Act Essay

To What Extent Does a Director's Duty Under Section 175 Companies Act 2006 Continue Post-Resignation - Essay Example The Company Act 2006 brought up a statutory code of general duties of directors; this introduction was appearing in the UK’s Company law for the first time. The main purpose of this legislation was to enhance the general understanding of the legal duties of directors. The duties of the directors established in the Act are based on certain equitable principles and common law rules. The interpretation of the statutory duties in the future is required to be according to the development of those principles of case law.2 The director’s duties are not owed to the shareholders but rather to the company. The Act stipulates the duty of each director to include: a duty to foster company’s success as the director deems it in good faith; a duty for the director to avoid any conflicts of interest; a duty of non-acceptance of benefits such as secret commissions and bribes; a duty to act within the terms of powers granted under the constitution of the company; a duty to exercis e reasonable diligence, skill, and care; a duty to declare any interests in the company’s transactions; and a duty to effect independent judgment.3 . In addition, the Act incorporates expressly long-standing equitable doctrines in order to provide remedies for director’s breach of duties, as noted for example in the case of Boardman v Phipps.4 Of most interest in this discussion is section 175 of Companies Act 2006. In reference to section 175 Companies Act 2006, this discussion will consider the extent to which a director’s duty will continue post-resignation. In particular, section 175 of the Companies Act 2006 deals with the director’s duties concerning conflict of interest (actual and potential). The main rationale of this provision is to codify the subsisting principles of case law and to develop parallel principles to the existing ones. Section 175 (1) state that a company director must avoid situations in which he has, or can have, conflicts of int erest either directly or indirectly, or this interest and that of the company may conflict. Section 175 (2) provides that the duty to avoid conflicts of interest applies particularly to the exploitation of any opportunity, information, or property.5 However, section 175(3) provides that this duty shall not apply to conflicts of interest arising from an arrangement or transaction with the company. Additionally, section 175(4) states that this duty will not be considered infringed if: the directors have authorised the matter or the circumstances cannot be reasonable considered as giving rise to conflicts of interest. In section 175(5), the Act provides that the directors may give the authorisation in the following situations: where the company is a public constitution and the provision enabling authorisation by the directors is contained in its constitution, or where the company is a private company and its constitution does not validate authorisation of matter. Besides, section 175(6 ) states that authorisation can be effective if: agreement to the matter was made without voting or its agreement could have