As reported in our April 2007 newsletter, the Companies Act 2006 has received Royal Assent and its various sections come into effect between December 2006 and October 2008. 1st October 2007 represents a key date, as the new codified rules regarding directors' duties come into force. This list of duties include a duty to act within their powers, a duty to promote the success of the company, a duty to exercise independent judgment and a duty to exercise reasonable skill, care and diligence. However the laws relating to a duty to avoid conflicts of interest, a duty not to accept benefits from third parties and a duty to declare an interest in proposed transactions or arrangements have not yet come into force and therefore the previous rules in the Companies Act 1985 and under common law will continue to apply. Lawyers are awaiting the court's response to a number of possible conflicts and inconsistencies that have now arisen.
For example, a director must promote the company's success with regard to various factors. These include but are not limited to the long term consequences of decisions, the interest of the company's employees, the business relationships with suppliers, customers and others, the impact the company has in the community and on the environment, the maintenance of a reputation of high standards and the requirement to act fairly for every member of the company.
Commentators have noted that a situation may arise whereby, for example, an environmental concern acts against the members' interests in the company being as profitable as possible. It will therefore be for the court to determine which factors take precedence when determining a director's compliance. To begin with, directors may feel that they are being pulled in different directions by different factors. Published - September 2007This article is provided for general information only.
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