Directors can be the target of great scrutiny, and the requirement to demonstrate transparency means that they should ensure compliance with their duties. Below is a brief guide to the non-fiduciary duties and responsibilities of a company director.
As well as the fiduciary duties imposed onto Directors by the Companies Act 2006, for confidence and public policy reasons, directors also have non-fiduciary duties that come from other legislation.
These non-fiduciary duties are usually to the general public and, in particular, potential customers.
Non-Fiduciary Duties
- A prohibition on certain types of marketing which may misrepresent the Company’s goods or services. Prohibitions on types of marketing which permit misleading information to be provided on financial or investment proposals entered into either with the Company or third parties is also prohibited.
- A duty of confidentiality on the director to use or disclose the company’s confidential information solely for the benefit of the company.
- A duty for directors to ensure that the company complies with its obligations relating to the health, safety and welfare at work of its workers under health and safety legislation.
- Duties under environmental legislation, anti-corruption, charity, and discrimination legislation.
What happens if a director breaches their duties?
Similar to a breach of fiduciary duties, a company can indemnify their directors in respect of certain proceedings brought against them by third parties, but they aren’t obliged to.
An indemnity can potentially cover both the cost of the claim itself and the costs involved in defending it but will never cover defence of, or fines imposed in criminal proceedings (unless successful) and penalties imposed by regulatory bodies.
It is common for a company to take out directors’ and officers’ (D&O) insurance for its directors. Policy cover and terms typically deal with directors’ liabilities arising from claims of negligence, breach of duty or other default. Unsurprisingly standard policy exclusions usually cover fraud, dishonesty and criminal behaviour.
To ensure confidence is maintained in the UK economy and the risk of fraud is mitigated, directors are subject to many legal requirements, a lot of these requirements exist within the Companies Act 2006, but a number including those above are elsewhere.
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Alan Taylor is a business partner with Proelium Law. Formerly a senior officer and member of the Army’s general staff, Alan began his career transition to law in 2015. Following the successful completion of a graduate diploma in Law at Oxford Brookes University and the legal practise course at the University of the West of England, Alan joined Proelium Law in January 2018 becoming a partner in July.
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