Written by Jeremy Boyle Last Updated: 1 December, 2025Company directors play a vital role in running a business. But failing to follow the rules can have serious consequences, from personal liability to director disqualification.
In this guide, we break down the seven statutory responsibilities for directors duties under the Companies Act 2006, and outline the consequences of breaching them.
- What are the duties of a company director?
- What are the seven duties of a director under the Companies Act 2006?
- Statutory vs fiduciary duties
- Understanding fiduciary duties of directors
- What happens if a director breaches their duties?
- Directors duties in insolvency
- Who can bring a claim for breach of directors duties?
- FAQ’s about directors duties
- Contact our director defence solicitors today
What are the duties of a company director?
Directors’ duties refer to the legal responsibilities that come with running a company. While individual directors may have specific roles, all directors share equal responsibility for the board’s decisions and actions.
The seven key director duties are outlined in the Companies Act 2006. In short, a company director must:
- Act within their powers and follow the company’s constitution
- Promote the success of the company for the benefit of its members
- Exercise independent judgment
- Exercise reasonable care, skill and diligence
- Avoid conflicts of interest
- Not accept benefits from third parties
- Declare any interest in a proposed transaction or arrangement.
Each of these director duties is explained in more detail below.
What are the seven duties of a director under the Companies Act 2006?
The Companies Act 2006 outlines the key statutory duties every company director is required to follow. Here is a quick summary of the seven duties and responsibilities of company directors in the UK:
1. Duty to act within powers
A director must act in accordance with the company’s constitution, usually set out in its articles of association, and must only use their powers for the purposes for which they were given.
In practice, this means:
- Understanding and following the articles of association
- Not exceeding the authority granted by the board or shareholders
- Using powers for legitimate company purposes, not personal gain.
2. Duty to promote the success of the company
This duty requires directors to act in a way they believe, in good faith, will promote the success of the company for the benefit of its shareholders as a whole.
When making decisions, directors should consider:
- The likely long-term consequences
- The interests of employees
- Relationships with suppliers, customers and others
- The impact of the company’s operations on the community and the environment
- The desirability of maintaining a reputation for high standards of business conduct
- The need to act fairly between members.
Directors who sit on the boards of group companies must treat each company as a separate legal entity. Decisions must be made in the best interests of that particular company, even if those interests differ from the wider group.
3. Duty to exercise independent judgment
Directors must make their own decisions rather than simply following the instructions of others, such as dominant shareholders or fellow directors.
This does not prevent a director from relying on expert advice, but they must still apply their own judgment when making decisions. It also means directors cannot abdicate their responsibilities or allow others to influence them unduly.
4. Duty to exercise reasonable care, skill and diligence
This duty combines objective and subjective tests:
- Objective: What would reasonably be expected of someone carrying out the same functions?
- Subjective: What can reasonably be expected of that particular director, based on their knowledge and experience?
In essence, a director must do their job competently, paying proper attention to the company’s affairs and understanding its financial position. A failure to monitor company finances, or to question irregularities, can amount to a breach of this duty, especially during periods of financial distress.
5. Duty to avoid conflicts of interest
A director must avoid situations where their personal interests, or those of someone connected to them, conflict (or could conflict) with the company’s interests.
This includes:
- Taking up business opportunities that belong to the company
- Having a personal stake in suppliers or competitors
- Holding directorships in rival companies.
Some conflicts can be authorised by the board (or shareholders), but only if full disclosure is made.
This duty continues even after a director has left the company. For example, if a director learns, through their role, that a key client is looking for a new service provider, and sets up their own business to bid for that work, that would be a clear conflict of interest.
6. Duty not to accept benefits from third parties
Directors must not accept benefits from third parties given because of their role (or actions) as a director, where the benefit could reasonably create a conflict of interest or influence their actions. For example, accepting an expensive holiday from a supplier in exchange for awarding them a contract.
This duty continues even after a director leaves office, if the benefit relates to something done while they were still in post. For example, if a director accepts a consultancy role from a contractor shortly after leaving the business — as a “thank you” for approving favourable terms while in office — that would be a breach.
7. Duty to declare interest in a proposed transaction or arrangement
If a director has any direct or indirect interest in a proposed transaction or arrangement with the company, they must formally declare it to the other directors (at a board meeting or in writing) as soon as they become aware of it. This ensures transparency and protects the company from potential conflicts or self-dealing.
There is a similar duty to disclose interests in existing transactions as soon as reasonably practicable.
Statutory vs fiduciary duties
- Statutory duties are those set out in the Companies Act 2006. They are the seven key obligations every company director must follow – as outlined above.
- Fiduciary duties stem from the principle that directors occupy a position of trust. As such, they must always be honest, loyal, and prioritise the company’s interests above their own.
Understanding fiduciary duties of directors
Fiduciary duties are older, trust-based rules developed by the courts.
Examples include:
- Acting honestly and avoiding personal profit from their position
- Not misusing company property or confidential information
- Not placing themselves in a position where personal interests conflict with their duty to the company.
A breach of fiduciary duty happens when a director fails to act in the company’s best interests or breaks one of the legal duties they owe to it. This can occur through deliberate wrongdoing, as well as through carelessness, inadequate oversight, or poor decision-making.
When a court decides whether a director has breached their duties, it considers both the rules outlined in the Companies Act and the broader principles of trust and fairness.
What happens if a director breaches their duties?
A breach of directors’ duties can lead to serious personal and financial consequences. Depending on the nature of the breach, the following may apply:
- The company may bring a claim for damages or compensation
- The director may be required to repay profits or restore property
- The court may set aside any transaction entered into in breach of duty
- Shareholders can bring a derivative action on behalf of the company
- In insolvency situations, the Insolvency Service or liquidator can pursue claims under the Insolvency Act 1986.
Breaches can also lead to disqualification under the Company Directors Disqualification Act 1986, preventing an individual from acting as a director for up to 15 years. If the breach involves dishonesty, criminal sanctions may also follow.
Breach of director duty examples
Some of the most common breaches of directors’ duties include:
- Misusing company assets or funds for personal purposes
- Failing to act in the best interests of the company during insolvency
- Paying one creditor in preference to others when insolvent
- Selling assets below market value. This is known as ‘transactions at undervalue‘.
- Allowing an overdrawn director’s loan account to persist without repayment
- Continuing to trade when there is no reasonable prospect of avoiding insolvency (wrongful trading).
- Carrying out duties in a way that causes harm or loss to the company (known as ‘misfeasance‘).
- Withdrawing company funds while HMRC liabilities remain unpaid.
In addition to the seven statutory duties, directors have broader legal responsibilities under other laws, including health and safety, environmental, data protection and anti-bribery legislation.
Directors duties in insolvency
Under the Insolvency Act 1986, when a company becomes insolvent – or is at serious risk of insolvency – the duties of its directors shift. At this stage, directors must prioritise the interests of creditors over those of shareholders.
Directors who breach their duties during insolvency can face personal liability, disqualification, or even criminal proceedings. If you’re a director facing financial difficulties or an HMRC investigation, early legal advice from insolvency solicitors is essential.
Who can bring a claim for breach of directors duties?
- The company: The board of directors can authorise proceedings on the company’s behalf.
- Shareholders: If the company fails to act, shareholders can bring a derivative claim. However, they must obtain the court’s permission to do so.
- Liquidators or administrators: When a company enters insolvency, the right to bring claims passes to the appointed liquidator or administrator.
- The Insolvency Service: In serious cases, particularly those involving misconduct, fraud, or repeated breaches, the Insolvency Service can investigate and take public interest action.
FAQ’s about directors duties
Fiduciary duties are the obligations of loyalty, honesty and good faith that directors owe to the company. They require directors to act in the company’s best interests, avoid conflicts of interest, and refrain from profiting personally from their position.
A material misrepresentation is a false statement significant enough to influence a party’s decision to enter a contract. In other words, it must be something that a reasonable person would consider important when deciding whether to proceed.
Generally, directors don’t owe fiduciary duties to shareholders, but to the company itself.
However, in certain circumstances – for example, where directors give personal undertakings or mislead shareholders – a separate duty may arise.
Shareholders can sue a director for breach of fiduciary duty. They can do this by bringing a derivative claim on behalf of the company, if the company itself failed to act. The court must permit such a claim to proceed.
Derivative claims frequently arise in the context of shareholder disputes, particularly when one or more directors are accused of acting unfairly, misusing company funds, or failing to comply with the terms of a shareholder agreement.
The statutory duties of a director are outlined in the Companies Act 2006. These duties apply to all company directors, whether executive or non-executive.
Creditors cannot usually sue directors directly. However, when a company is insolvent, a liquidator or administrator can bring claims on behalf of creditors under the Insolvency Act 1986.
Yes. Non-executive directors (NEDs) are subject to the same statutory and fiduciary duties as executive directors.
Contact our director defence solicitors today
At Summit Law, our specialist insolvency and dispute resolution team advises on all aspects of directors’ duties and potential breaches – from early risk management to defence and litigation.
Our expert insolvency lawyers will:
- Assess your position: We’ll review your role, responsibilities, and any evidence to identify potential breaches.
- Guide you on your options: We’ll explain your obligations and outline your legal and practical choices.
- Act on your behalf: We represent directors, shareholders, and insolvency practitioners in claims involving director breaches.
- Support you every step of the way: From first consultation to resolution, we provide clear, pragmatic advice and robust representation.
Contact Summit Law today at 020 7467 3980 for confidential and expert advice on director duties and responsibilities.
