Company Directors’ Duties, Loans to Directors and Conflicts of Interest

January 2012
This month our popular series of Company Secretary Factsheets is taking a new direction and focusing on the rules governing Directors.

Prior to 1st October 2008 the rules governing directors’ duties were derived from several sources including common law and statute. The Companies Act 2006 has changed this position with what is described as a ‘codification’ of the existing law and accordingly the C.A. 2006 now details the general duties of directors.

Directors’ duties under the Companies Act 2006 Factsheet

This new Factsheet focuses on Directors’ Duties. The board of directors has collective responsibility for the company and accordingly each director owes specific duties to the company ranging from “a duty to act in accordance with the company’s constitution” to “a duty to avoid conflicts of interest”. The duties of a director are owed to the company and only the company can bring an action against a director for breach of duty. This Factsheet examines the following areas from a company secretarial perspective:

Directors’ duties
Directors’ proceedings
Remuneration, expenses, gratuities and pensions
Conflicts of interest
Loans to directors
Shareholder litigation and derivative claims
Indemnity and insurance

Loans to Directors Factsheet

The Companies Act 2006 has removed the general prohibition on loans to directors, replacing it instead with a requirement for loans to directors to be subject to shareholder approval. This Factsheet looks at the issue of Loans to Directors in more detail including the following areas:

Loans to directors and the provision of guarantees for directors
Exception for loans under £10,000 in aggregate
Who are ‘Connected Persons’?
Practical steps for approval of a loan
Loan Agreements

Directors - Conflicts of Interests Factsheet

Company secretaries and company administrators should be prepared to advise directors about conflicts of interest. This is an important area, as three out of the seven director’s duties specified under the Companies Act 2006 concern conflicts of interest. This Factsheet considers the following:

Duty to avoid conflicts of interests

Who are ‘Connected Persons’?

Substantial property transactions

Company Secretary Factsheets are easy to use, step-by-step guides to the tasks commonly performed by the company secretary, or the individual acting in that role.

The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.

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