Law - Directors Duties - Essay Example

With the existing emphasis on corporate social responsibility, traditional common law notions had to be revised with a codification by the Companies Act Review. The codification of the Companies Act focused on 9 main sections, which define the duties that the directors owe to their companies. The first codification is section 171, which requires the directors to act within their powers in association with the company. Section 172 sets out the duty of the directors to promote the success of the company in a way that benefits the shareholders of the company.

Section 173 requires the directors to exercise independent judgment in their actions and decisions, while section 174 of the codified version of the Companies Act requires the directors to exercise reasonable care, skill and diligence in actions regarding the company. Section 175 requires the directors to avoid conflict of interest, where the methods or authorizing such conflicts have to be sanctioned by either board or shareholder approval. Section 176 requires the directors not to accept benefits from any third parties, especially if the benefits could lead to conflict of interest with the company’s articles. . Section 182 of the Company’s Act also clearly sets out the remedies available to the shareholders or the company if a director breaches the duty to the company.

As already stated, the codified duties are performed by the director for the company, which means that only the company or statutory liquidator is able to act on the director’s breach of duty. However, a shareholder is also able to bring a derivative action against the director if needed. From section 260 of the Company Act 2006, a derivative action is one that can be brought by an interested party, mainly shareholder, against a director as a remedy for breach of fiduciary duty owed to the company.

Section 175 of the codified Companies Act 2006 has generated a lot of debate and interest from different parties (Hannigan, 2009). Under this section, the director must avoid any situations which can have direct or indirect conflicts with the interest of the company (Companys Act 2009). This section overlaps with other sections of the Companies Act, for example, it is already required that the director act in the best interests of the company, which means that the best interest would not overlap with any other interests.

Previously, the rule on conflict of interest required the director to take steps to mitigate the conflict. For example, the director would be required to remove himself from board discussions, and in extreme circumstances, remove himself from the board completely (Hannigan, 2009). However, the new rule requires the director to completely avoid areas where the conflict o interest might arise, unless the board has prior notice and authorization for the conflict of interest. From the codification of this section, it is evident that there has been a lot of