The changes

Directors

A statement of director’s duties
In order to help make it easier to understand the general duties that a director owes to their company, there will be a formal, statutory code of directors’ general duties to the company. This will clarify the existing duties that have developed over the years through case law.

The Act requires each director to act in a way that they consider, in good faith, would be most likely to promote the success of the company for the benefit of its shareholders as a whole. This broadly replaces the existing duty to act in the company’s best interests.

Where this duty is breached, the company, or the shareholders on behalf of the company with the consent of the court, will be able to sue the directors. However, directors will only be liable for a breach of this duty if the company has suffered a loss as a result of the breach.

Wider social responsibility
In performing the above duty, the Act requires that directors give some consideration as to how their decisions affect the wider interests of their employees, the community, the environment, their suppliers as well as other factors.

This is seen as one of the more controversial requirements of the Act, although it is not expected to result in a ‘multi-stakeholder’ approach to decision making.

Directors’ safe harbour from liability
As reporting requirements increase for some companies, the Act gives directors a ‘safe harbour’ that will restrict their civil liability in respect of material omissions from, or statements made in, directors’ reports. Broadly, liability will only arise if statements are for example untrue or misleading and made deliberately or recklessly.

In these circumstances, a director would only be liable to the company and not to shareholders.

Transactions with directors
The current rules that regulate transactions between directors and their company, which require shareholder approval, have been reformed and restated. In particular, the Act permits companies, with shareholder consent, to make loans, give guarantees or provide security in connection with a loan to a director.

Directors will also:

• rather than their private residential address, on the public records at Companies House. A company must keep a register of directors’ residential addresses and these will still have to be notified to Companies House even though they need not appear on the public register
• no longer need to file details of other directorships.

The Act continues to allow companies to have corporate directors, although at least one director will have to be a natural person.