The Companies Act 2006 (hereinafter called the 2006 Act) regulates the activities of all companies operating inside the United Kingdom. The 2006 Act superseded the Companies Act 1985 (hereinafter called CA 1985). The 2006 Act provides an extensive code to nearly every part of company’s activities. The main provisions of the law are: 1) codification of existing common law principles, such as those related to director’s duties, whether they are executive or non-executive directors, 2) implementation of the European Union’s Takeover and Transparency Obligation Directives, and 3) it introduces new laws for government and private firms. This paper particularly examines the impact of 2006 Act on director’s duties. It discusses director’s duties before and after the 2006 Act. It also analyses, if the Act made it easier to pursue director’s duties and make directors more accountable for diverse stakeholders.
II. Director’s duties before 2006 Act
By tradition, director’s duties were fragmented by self-regulatory and regulatory measures (Sheikh 2008: 371 and The Association of Chartered Certified Accountants [ACCA] 2006: 9). The regulatory measures consisted of fiduciary duties, statutory duties, and common law duties.
A. Fiduciary duties
Fiduciary duties aim to reduce the potential for abuse of power in corporations by subjecting directors to several controls and statutes (Sheikh 2008: 372). According to law, directors are fiduciaries and they agree to act in behalf of the company they work for: “someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence” (ACCA 2006: 9). At this point, the law does not concretely specify the main goals of companies, but it is implicit that the duties will exercise their duties, in relation to the maximization of shareholder wealth (Sheikh 2008: 372). The interests of the companies are “synonymous” with that of the shareholders (Sheikh 2008: 372). Directors must enforce their duties ethically, by balancing shareholder interests with the interests of other stakeholders (Sheikh 2008: 372).
As fiduciaries, directors also have the duty to not put oneself in a position of potential conflict (Sheikh 2008: 379). In Boardman v Phipps (1967) 2 AC 46, Lord Upjohn says:
‘It is an inflexible rule of a Court of Equity that a person in a fiduciary position . . . is not, unless otherwise expressly provided, entitled to make a profit, he is not allowed to put himself in a position where his interest and duty conflict. It does not appear to me that this rule is, as has been said, founded upon principles of morality. I regard it rather as based on the consideration that, human nature being what it is, there is a danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than by duty, and thus prejudicing those whom he was bound to protect. It has, therefore, been deemed expedient to lay down this positive rule.’ (as cited by Watt 2006: 439)
It is the duty of directors to not place themselves in ethical conflicts, especially where they can obtain unauthorised profits. By unauthorised, this refers to the profits that the board or shareholders have not specifically approved.
To prevent conflicts of interests, s 317 of CA 1985 mandated directors of both public and private companies to state to the board of directors of these companies, any direct or indirect interest that they may have in contract or any form of agreement (Sheikh 2008: 379). This disclosure must be made to the board of directors and not to the committee of the Board (see Guinness v Sauders). When a director does put himself in a place of conflict, any transaction made by the company with the director can be voided, as in Gardner v Parker (Sheikh 2008: 379).
Directors also have the duty of skill and care, which has rooted from basic fiduciary duties. These fiduciary duties are sensitive to the particular circumstances of directors of limited companies, specifically when they have been appointed by the shareholders to manage the capital entrusted to them and to make use of that capital for the main goal of maximizing profits (ACCA 2006: 9). The law has stressed that shareholders are at liberty to believe in and trust their directors to perform their functions with “a degree of skill, care and diligence” (ACCA 2006: 9). There are modest standards imposed on directors, wherein they are expected to use their skills and knowledge to attain shareholder wealth maximization (ACCA 2006: 9-10).
Directors must also perform the duty not to confine future discretion (Sheikh 2008: 381). They must ask for the company’s approval, before they can aim to restrict future decisions (Sheikh 2008: 381). On the other hand, if the directors will act bona fide and take part in a contract, regarding how they will vote in future board meetings, the courts can sustain that decision (Sheikh 2008: 381). In Fulham Football Club Ltd v Cabra Estates plc, the actions of the directors to support a planning application were decided to provide great benefits for the company (Sheikh 2008: 381). The Court of Appeal maintained that the directors had not negatively fettered the future discretion of the company through these activities (Sheikh 2008: 381).
On the other hand, company law has not dealt with the issue of corporate philanthropy or “gratuitous distributions to employees” and it has also not studied the interests of other claimants, in any of the fiduciary duties related to suppliers, customers, creditors, and the society (Sheikh 2008: 372). There has been no similar debate, as in the United States (U.S.), regarding the “trusteeship” of directors, such as the debates between Berle and Dodd during the 1930s (Sheikh 2008: 372). UK company law does not provide any form of “social law” that can address diverse claimants or stakeholders of corporations (Sheikh 2008: 372). The attitudes of the court toward corporate philanthropy and directors considering the interests of stakeholders have fallen within the scope of ultra viveres principle (Sheikh 2008: 372). A reference points out that in the UK: “There was a little recognition in case law that a company had a corporate conscience- that it had some obligations towards other stakeholders” (Sheikh 2008: 372). UK law does not require companies to behave like good corporate citizens, and so there has become a negative view of big companies as control-obsessed entities that primarily focus on profit-maximization goals only (Sheikh 2008: 372). These companies are described as “soulless,” because they are not interested in the impacts of their operations on other stakeholders (Sheikh 2008: 372). Since shareholders of companies are also significantly dispersed, directors can manage corporate affairs and overlook extensive interests that shareholders also represent (Sheikh 2008: 372).
B. Statutory duties
Companies’ legislation and other related laws has, for a long time before 2006 Act, imposed a wide set of particular responsibilities on directors (ACCA 2006: 10). These are the statutes conferred to directors by virtue of their duties (ACCA 2006: 10). The statutes also include that directors must fulfil these duties or ensure that other people help comply with these duties (ACCA 2006: 10).
C. Duties in common law
Before the 2006 Act, numerous directors’ duties are interpreted from common law.
1. Breach of contract as implied
Breach of contract is not expressly provided by the common law. Directors do not have the power to bind their companies to transactions that the former enter into (Griffiths 2002: 105). This has been called as the term ultra viveres; however, the Court of Appeal in Rolled Steel v British Steel Corporation noted that, to reduce confusion, this term must only be used to pertain to a “lack of contractual capacity on the part of the company” (Griffiths 2002: 105). The directors lack power because of the general law of agency, wherein directors only act as agents of their companies when performing their duties, and they can only bind their companies if they have been given the power to do so (Griffiths 2002: 105). The range of powers for directors is derived from the constitution (Griffiths 2002: 105). If the directors enter into contracts for their companies that are not included in their scope of authority, these contracts are “potentially void and unenforceable by the third party” (Griffiths 2002: 105). The voidness part, nevertheless, is conceptually dissimilar from the company’s inadequate enforceability (Griffiths 2002: 105).
The third party can still apply the contract, even when they do have real authority, if the directors who made the contract have the authority to enforce it, and the third party is not knowledgeable that the directors cannot enforce the contract (Griffiths 2002: 105). This shows the difference between the perceived and actual powers of the directors and how such perceptions can impact the view on breach of contract (Griffiths 2002: 106). The common law, however, deems that third parties have access to the company’s public file that is administered by the Registrar of Companies, including the terms that define the range of the director’s powers. Common law asserts that third parties cannot apply the contract, if the constitution of the corporation already determines the extent of director’s actual authority (Griffiths 2002: 106).
On the other hand, a contract without actual authority can still have potential legal validity (Griffiths 2002: 106). A voidable contract must be rescinded by the company, before it can lose its validity (Griffiths 2002: 106). A contract that has been formed without actual authority does not have to withdrawn, but it does not automatically binds the company (Griffiths 2002: 106).
2. Equitable remedies
Under the law, any claims against a director who has conducted a wrong to the company are frequently brought by the company itself (as permitted by its board of directors). Members are also permitted to carry claims on behalf of and for the benefit of the company (a derivative action) in certain conditions.
Common law provides that directors must exercise their duties of proper care and skill (Sealy and Worthington 2008: 306). In Dorchester Finance Co Ltd v Stebbing (1977, a money lending company has three directors, Stebbing, Parsons, and Hamilton. Stebbing worked full-time, while the rest of the directors did not manage the company more actively. Parsons and Hamilton signed blank cheques that Stebbing requested for, which the latter used to make illegal and irrecoverable loans. Board meetings were not held to verify these cheques. The three directors were held liable for the actions of Stebbing. Foster stressed the fact that the two non-executive directors were knowledgeable in accountancy. He said:
For a chartered accountant and an experienced accountant to put forward the proposition that a non-executive director has no duties to perform I find quite alarming. It would be an argument which, if put forward by a director with no accountancy experience, would involve total disregard of many sections of the Companies Act 1948… The signing of the blank cheques by Hamilton and Parsons was in my judgment negligent, as it allowed Stebbing to do as he pleased. Apart from that, they not only failed to exhibit the necessary skill and care in the performance of their duties as directors, but also failed to perform any duty at all as directors of Dorchester. In the Companies Act 1948 the duties of a director whether executive or not are the same. (Sealy and Worthington 2008: 306)
Directors have duties to ensure that they take positive action for their companies and manage the financial affairs of the company (Sealy and Worthington 2008: 306). Directors must use their skills and knowledge to specifically manage the areas of the company, for which their skills and knowledge would be particularly useful.
The common law provides for the duties of directors, which when overlooked, can be a sign of their negligence (Clarke 2007: 36). The Company Law reform Bill (2005) contains statutory statements of director’s duties. The seven duties are:
1) to act within the powers conferred;
2) to promote the success of the company for the benefit of its members. Directors must have regard to the long term and wider factors such as relationships with employees, suppliers, customers, and the impact of the company’s operations on the community and the environment.
3) to exercise independent judgment;
4) to exercise reasonable care, skill, and diligence
5) to avoid conflicts of interest;
6) not to accept benefits from third parties;
7) to declare an interest in a proposed transaction with the company. (as cited by Clarke 2007: 36)
These statutory rights provide shareholders the opportunity to sue directors, based on negligence, default, breach of duty or breach of trust (Clarke 2007: 36).
III. Companies Act 2006
The Companies Act 2006 consists of the “first ever statement in statute of directors’ duties in respect of the environmental and social impacts of their companies’ business” (Chivers 2007: 6). The new law makes explicit connections between social responsibility and business success (Chivers 2007: 6 and Moore 2009: 96). Furthermore, 2006 Act fundamentally codifies common law applications of director’s duties. This section discusses the difference between the 2006 Act and other statutes.
A. Impact on director’s duties
Section 170 (1) clarifies that the directors owe general duties to the company and only the company can enforce these duties. The duties imposed to directors are based on common laws and equitable principles: “The general duties shall be interpreted and applied in the same way as common law rules or equitable principles, and regard shall be had to the corresponding common law rules and equitable principles in interpreting and applying the general duties” (s 170 (4) 2006 Act). The duties are owed by every person, who is a director. They are owed by shadow and properly appointed directors: “The general duties apply to shadow directors where, and to the extent that, the corresponding common law rules or equitable principles so apply” (s 170 (5) 2006 Act).
1. Director’s duties
Section 171 pertains to the duty of directors to act within the company’s powers. Section 171 stresses two important duties. First, directors must value and act in agreement with their company’s constitution, which includes following the restrictions on their powers, which may be established by the company’s articles of association or which those that have been voted for and agreed by the company’s shareholders. Second, directors must implement their powers for an appropriate purpose. The powers that shareholders provided them must be used to advance the benefits for the company.
Section 172 pertains to the duty of directors to uphold the success of the company: “A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole…” (s 172 (1) 2006 Act). This section asserts that directors must consider long-term repercussions of all activities and decisions. This section considers a wide array of stakeholders in the decision-making process of directors, including employees. Directors must also expressly consider the impact of company operations on the community and the environment: “The impact of the company’s operations on the community and the environment” (s 172 (1d) 2006 Act). Directors must also keep in mind how they can pursue “reputation for high standards of business conduct” (s 172 (1e) 2006 Act). At the same time, directors must also mediate among company members: “the need to act fairly as between members of the company” (s 172 (1f) 2006 Act).
Section 173 refers to the duty to exercise independent judgement, where the director of any company must exercise “independent judgement.” There are exemptions, where companies have entered into agreements with regard to the future employment of directors’ discretion, and where the company’s constitution makes particular provisions on this matter.
Section 174 pertains to the duty of directors to exercise skill, care and diligence. The Act provides a new statutory test for deciding what will be” reasonable” for this function. The test has a subjective and objective dimension.
The “subjective” element states that directors must act in agreement with the general knowledge, skills and experience that they have. This reinforces the common law that directors, who are accountants, must specifically attend to the accounting side of the company.
The “objective” element states that directors must use general knowledge and skill that may rationally be expected of a person performing the functions done by directors in relation to the company. The directors’ conduct must reflect their duties and functions. For instance, an executive director who is responsible for Sales will be evaluated according to the performance benchmark for that function.
Section 175 pertains to the duty of directors to avoid conflicts of interest, which enacts the traditional position that directors must not allow any private or external interest to impinge on their duty to their company. Directors must shun any situation in which they have, or may have, a direct or indirect interest that clashes, or may possibly clash, with the interests of the company. At the minimum, this means that directors should not be involved with competing companies (ACCA 2006: 13).
This constraint does not include immaterial cases. For private companies, unless there is anything that stresses roles, which are dissimilar in their constitutions’ articles, the directors may choose to approve one of their number’s involvements in a matter that can result to actual or potential conflict (ACCA 2006: 13). In the case of public companies, directors may choose to do this, if their constitution permits them (ACCA 2006: 13).
The duty to avoid conflicts is also enforced for former directors. This means that former directors cannot take advantage of their knowledge by applying to competitors of previous companies (ACCA 2006: 13).
Section 176 refers to the duty of directors to not accept benefits from third parties. Directors should not accept any gifts or bribes from third parties, because they are directors, or because they have done or not done certain actions. In relation to section 175, immaterial benefits can be overlooked, if they cannot be connected to conflicts of interest (ACCA 2006: 13). Section 175 asserts that former directors should also not receive gifts in relation to their former jobs.
Section 177 pertains to the duty to declare interest in a proposed transaction or arrangement. This promotes transparent, because directors who are interested in transacting with the company must state the nature and degree of that interest to the other directors. This can be discussed during the meetings of directors, when the matter arises for discussion, or it can be provided in written form. Written notices can be either precise or wide-ranging. For general written notices, the director can give preceding notice to the company of every firm or company in which he or she is concerned with, at any given level.
2. Easier or harder?
The 2006 Act have made directors’ duties harder, because they now have to follow codified rules about social responsibility and consider a wide range of stakeholder interests. The 2006 Act now mandates the fundamental duties of directors, and how directors must perform their duties (Chivers 2007: 6). Directors must now closely consider other interests expressed in 172 (1)(a)-(f). Before, directors only have to consider these matters as needed, but now, they are mandated provisions that cannot be overlooked (Chivers 2007: 6). In reality, it will not be easy for directors to balance conflicting interests. For instance, who will the directors prioritize when employees demand higher wages, while shareholders demand for a higher bottom line and dividends? The 2006 Act says that shareholder interests should not be compromised, but the challenges of conflicting interests can make that compromise easier to do than to avoid.
Furthermore, nonexecutive directors can possible have objective standards also that can now apply to them, in pursuance of s 174 of the 2006 Act (ACCA 2006: 13). This can limit or expand their duties, depending on the provisions of their constitutions. Directors of smaller companies might also have difficulties in regarding a wide array of stakeholders, due to limited resources, but they will not be excused from performing these duties. In addition, the 2006 Act provides derivatives that can enhance cases brought against directors. On one hand, this makes directors accountable for their duties. This has provided companies a directive to have a corporate soul (Dbe 2010). On the other hand, shareholders might make sufficiently strong cases that may not always be aligned with the perceptions of directors of their own roles and functions. Hence, 2006 Act has made directors accountable for wider interests that they cannot always control, which can open the gates to a greater number of litigations against them in the future.
B. Decisions that should be made based on 2006Act
According to the 2006 Act section 172, directors will only be following their legal duty to encourage the success of their company if they have “had regard” to the particular matters and to any other issues, which may be relevant in the circumstances. The Act does not describe what “have regard” particularly intends to do. The government has provided that directors must consider different stakeholders now, but still in relation with their duty to the company: “On this basis, provided that directors do not ignore the listed factors completely, and take due account of the potential significance of each of them for the company’s best interests, they should remain free to make their own balanced, good faith judgements without falling foul of the law” (ACCA 2006: 12).
C. Assessment of the 2006Act
1. Any real difference?
1.1 Social responsibility
The 2006 Act mandates that directors should be responsible for other stakeholders. Section 172 stresses that directors must act with a sense of social responsibility, by thinking of their stakeholders: employees, suppliers, customers, and creditors. Directors should also consider the impact of the company on the environment and the communities. A director who provides “lip service to the list of matters, but gives no proper consideration to them will be in breach of duty” (Chivers 2007: 7).
For the capable director, there should be no additional burdens. Chives (2007: 7) argues that the new Act will help directors justify the consideration of stakeholder matters, make sure that all directors are properly informed about the consequences of their actions, and it will protect directors from being pressured by shareholders to pursue short-run gains.
The Act does not necessitate a director to compromise the interests of the company, however, to pursue social and environmental goals (Chivers 2007: 7). However, the Act stresses that companies whose directors regard pertinent social and environmental objects are expected, in the long term, to have better performance than directors who do not have regard for these issues (Chivers 2007: 7).
The scope to which a director will be able to have consideration of the consequences of any action will rely on the sufficient management information systems and the resources accessible to the company (Chivers 2007: 7). A large company is expected to have the resources to hire people, who can assess the risks and consequences of company decisions and actions (Chivers 2007: 7).
A smaller company can be expected to prepare its own reports about the consequences of their business (Chivers 2007: 7). The duty for these diverse matters are also applied, whether the company is small or big (Chivers 2007: 7). A single director of a small company will not be excused for violating the aforementioned duties, just because they cannot hire people to examine the risks of their decisions (Chivers 2007: 7). The director must conduct the best assessment provided by existing resources.
1.2 Conflicts of interest
The Act creates a “new, positive duty” to avoid unofficial conflicts of interest (Chivers 2007: 13). The Act also allows conflicts of interest to be approved by directors instead of by shareholders. Directors must be particularly authorised by the board to allow them to continue activities of previous conflicts of interests: “This duty is not infringed- (a) if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest; or (b) if the matter has been authorised by the directors” (s175 (4a, 4b) 2006 Act). This section is also very expansive, because it includes actual and potential conflict. This means that directors who face actual or possible conflicts of interest, because of their positions, must either get hold of authority to act, or eliminate the possibility of the conflict, or resign as directors.
1.3 No Bribe rule
Section 176 is basically the “no bribe” rule. The Act codifies for the first time, the statutory rule against directors accepting gifts from third parties. On the other hand, the company’s constitution can allow these gifts, which can conflict with the law. There is a grey area between acceptable and unacceptable gifts (Chivers 2007: 13). There are also gray areas between company-to-company hospitality, which cannot be easily turned down, such as a trip paid by a supplier to directors. Directors should guarantee that they do not accept any benefits not provided for, or allowed, under the constitution of the company. The only exceptions will be benefits that are so small that they could not be believed to influence directors in any way.
1.4 Derivative actions
The 2006 Act provided new derivative claims procedure and directors’ potential liability. From 1 October 2007, a new derivative claims procedure will be available to members (acting on behalf of the company) under the Companies Act 2006, such as that of shareholders versus directors (Olswang 2007: 7). This takes aside the common law procedure and clarifies new procedures (Olswang 2007: 7). Some have been concerned that these derivative actions will make it easier for people to bring charges to their directors.
In several aspects, the Act will expand the capacity of derivative claims (Olswang 2007: 7). Different from the common law, it will no longer be essential to demonstrate that the suspected wrongdoer(s) control the company and will not authorise the company to bring the allegations (Olswang 2007: 7). The Act will also permit claims that are connected to a proposed (rather than a preceding) act of negligence or breach of duty or trust by a director and it is not essential to confirm that the director aims to benefit or will benefit or that companies will suffer losses. Furthermore, any member who wants use this new procedure will now have to commence a two-stage application process before the court so that they can get the permission to carry on with the derivative claim. The first stage refers to the application to the court without notice to the company. If the court is content that there is a prima facie case to answer, it may give courses for the company to file evidence which will be studied by the court in the second stage. The court will think about a number of other factors, including “whether the applicant was acting in good faith, whether the shareholders had authorised or ratified the breach being complained of and whether the conduct of the director concerned was consistent with the requirements of section 172” (ACCA 2006: 16). If the court is not content on all these counts, the shareholder’s application will be dismissed (ACCA 2006: 16).
The approach that courts will take to enforce this provision warrants further observation. That approach will establish the view of the courts on the rationale and benefits of the derivative claims.
An article also provides these considerations:
1) Any remedy awarded under the derivative claims procedure will be made in favour of the company (and not the individual member making the application); and
2) Under the Act, members may continue to make claims on their own behalf on the grounds that the company’s affairs have been conducted in a manner which is unfairly prejudicial to them. Members may prefer to take advantage (wherever possible) of these provisions rather than taking the risk of not recovering the costs of making the necessary applications to bring a derivative claim. (Olswang 2007: 7)
Furthermore, there will also be instances wherein the members may settle on ratifying any negligence, default, breach of duty or breach of trust on the part of a director, using the new provisions of the 2006 Act (Olswang 2007: 7). Votes can be enough to ratify the codes of conduct that can justify the actions of the director. When this happens, the court can dismiss the derivative claims (Olswang 2007: 7).
1.5 Insurance and indemnities
The present law before the 2006 Act has multifaceted rules on when directors can be indemnified by the company for costs and liabilities, because of their negligence or breach of duty (Webb and Kent 2006: 408 and Olswang 2007: 7). These existing provisions have included in the 2006 Act with some changes (Olswang 2007: 7). Companies are allowed to cover directors against civil liabilities they sustain on third parties, “although indemnities against liabilities owed to the company itself or any associated company are still restricted” (Davies and Rickford 2008; Olswang 2007: 8). The provisions have been broadened so that the directors of a company who act as trustees of an occupational pension scheme can be indemnified against liability gained through connecting with the company’s activities as trustee of that scheme (which also has its limitations) (Olswang 2007: 7).
On the other hand, directors are required to implement their general duties, as they perform their various functions. They will be assessed in reference to these general duties, when matters are brought to court. Where directors are discovered to have breached their duties, they can be compelled to return any property erroneously taken from the company or to pay damages to the company.
The 2006 Act contains comprehensive rules that demand copies of qualifying indemnities to be saved and these must be obtainable for examination for a year after they have expired or terminated (Olswang 2007: 7). The continuation of a qualifying indemnity must also be expressed in the directors’ annual report (Olswang 2007: 7). Directors may study any present indemnities and also the terms of any directors’ and officers’ insurance that will be affected by these changes.
1.6 Personal liability of directors
Directors generally owe duties to their companies. However, the courts have stressed that where a company is bankrupt or approaching insolvency, the balance of responsibility rotates to the creditors, instead of the shareholders (ACCA 2006: 17). This principle is shown in the ‘Wrongful Trading’ provisions of the Insolvency Act 1986 (ACCA 2006: 17).
These ‘Wrongful Trading’ provisions stress that where a company has gone into bankrupt liquidation, the liquidator may reconsider the trading record of the business in the two-year period before the liquidation and, if he/she finds out that directors did not perform everything they could have done to diminish the ultimate losses to creditors, he/she can pertain to the court to make the directors individually liable for those losses (ACCA 2006: 17). Hence, the directors of companies which are undergoing harmful financial problems should evaluate the implications of progressing to trade and should look for professional advice before they make any decision (ACCA 2006: 17). Liquidators also have the authority to acquire money from directors under the ‘Misfeasance’ rules, “where they consider individual directors to be in breach of their other legal duties to the company” (ACCA 2006: 18). These powers can include revering the illegitimate dividends that directors have paid to themselves (ACCA 2006: 18).
When a company becomes bankrupt, it is completely legal for its directors to establish another company straight away after and to produce transactions through that company (ACCA 2006: 18 and Payne 2008). What is illegal, with some restrictions, is for directors of a bankrupt company to make a new company which has the same corporate or trading name to the insolvent company, so as to indicate to customers and suppliers that the same company is still operating, also called “phoenix” companies, because they have arisen from dead companies (ACCA 2006: 18). Such actions are judged as “unfair and deceptive business conduct” (ACCA 2006: 18). Directors who break this rule will risk criminal charges and will also incur personal liability for the second bankruptcy of this “phoenix” company (ACCA 2006: 18).
At the same time, if the directors have already been disqualified, according to the Company Directors Disqualification Act 1986, bracing this disqualification order may cause the director to be personally liable for the debts that the company has incurred, during the time that directors breached the Act. In addition, the Companies Act and other statutes also describe other conditions, where directors can be fined for breaching specific requirements or else made to reimburse their company.
2. Lack of changes?
There is still lack of changes unresolved by the 2006 Act. The remedies for breach of the statutory general duties have not been part of the codes of the 2006 Act. The 2006 Act states that the equivalent consequences and remedies as are presently available should apply to breach of the statutory general duties. Where the statutory duties can be different from their equitable equivalent, the court will still have to determine the appropriate remedies for breach. Talbot (2009) also points out the demise of ultra vires, which indicates the rise of elite shareholders. His main argument: “The doctrine of ultra vires delivered a balance of power in the corporation in a way that the Combined Code cannot because it addresses the power of controlling shareholders and not just management and it applied to both private and public companies” (193).
The 2006 Act has expanded the duties of directors and made them liable for a wider range of decisions and consideration for other stakeholders. This has made their duties harder, because of the general duties imposed on them. However, these general duties will force directors to become more accountable for their decisions and be sensitive to the ethical and social implications of their actions (Dbe 2010). In addition, public and private companies will not escape the accountability measures that the 2006 Act mandated. Directors of these companies must now review their actions and guidelines of decision-making and reporting to ensure that they are following the provisions of the 2006 Act.
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