ON OCTOBER 1, 2007, the new provisions in the Companies Act 2006 will come into force.
Part of the Act contains the new statement of the “seven director’s duties�.
These new duties will affect all company directors whether of a private or plc company, executive or non executive, and to “shadow directors�.
While the statute was intended only to codify the existing law, some of the concepts are new, such as to “promote the success of the company�.
How that new duty will be interpreted in practice remains to be seen, although it is clear the meaning of the word “success� is open to debate; does it mean that if the company has not been profitable then the directors have not promoted “success� and will be held liable?
How “successful� do the directors need to be to avoid liability? It remains to be seen how the new duties will be interpreted by the courts. We are likely to see an increase in claims against directors, especially where companies enter into some form of insolvency procedure.
Additionally, we will see an increase in claims from disgruntled shareholders in companies which continue to trade.
The latter is particularly likely given the new Companies Act will also make it easier to bring “derivative actions� in the company’s name against directors who breach their duties.
SUE RUSSELL is a corporate partner at Halliwells.