The recent administration of British Home Stores was an excellent example of what can happen when the duties of a director are overlooked. As well as Sir Philip Green, then-current director Dominic Chappell has been facing criticism for buying the firm in a ‘get rich quick’ deal to benefit only his own bank balance, without giving due care to the needs of shareholders and employees.
The BHS case is just one of a number of high-profile examples of directors failing to fulfil their duties, highlighting the importance of a strong director who applies due care and attention to the appropriate legislation.
As outlined by the Department for Business Innovation and Skills (BIS), the directors’ duties are a set of principles that must be adhered to by all directors within organisations. According to the department’s guidance on the subject, these duties must be fulfilled even if the director is not active, or if a person is acting as if he were a director of an organisation without formal appointment. If, in the meantime, a company became insolvent, the director’s duties would no longer apply towards the company, but towards the creditors.
One of the most obvious duties required of a director is to promote the success of the company. A director is responsible for the consequences of their decisions and must act in the best interests of the company, its shareholders, and their employees, while also considering the potential impact on the local community and the wider environment.
In addition to managing the success of a company, directors are required to exercise reasonable care, skill and diligence, and accept the responsibilities and expectations associated with the role. Furthermore, directors are expected to comply with the company constitution/ articles.
Directors must also consider potential conflicts of interest. They are expected to avoid putting themselves into situations where their loyalties are divided, and must not accept benefits from people other than from the company or a person acting on behalf of the company.
The importance of a director’s independence is also made clear in the BIS guidance. As part of their role, directors must not allow their powers to be controlled by others, and must not misapply or misplace the company’s property.
Feel free to talk to our team at London Registrars about the benefit of a company governance review which would involve the auditing of your management systems such as a risk register, director powers, statutory registers, and service contracts.