Company Law Reform Bill [HL]

House of Lords

Session 2005 - 06
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Company Law Reform Bill [HL]

Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 1 — Appointment and removal of directors
66

148
Particulars of directors to be registered: power to make regulations
(1)
The Secretary of State may make provision by regulations amending—
section 145 (particulars of directors to be registered: individuals),
section 146 (particulars of directors to be registered: corporate directors
and firms), or
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section 147 (register of directors’ residential addresses),

so as to add to or remove items from the particulars required to be contained
in a company’s register of directors or register of directors’ residential
addresses.
(2)
Regulations under this section are subject to affirmative resolution procedure.
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149
Duty to notify registrar of changes
(1)
A company must, within the period of 14 days from the occurrence of—
(a)
any change in its directors, or
(b)
any change in the particulars contained in its register of directors or its
register of directors’ residential addresses,
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give notice to the registrar of the change and of the date on which it occurred.
(2)
Notice of a person having become a director of the company must—
(a)
contain a statement of the particulars of the new director that are
required to be included in the company’s register of directors and its
register of directors’ residential addresses, and
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(b)
be accompanied by a consent, by that person, to act in that capacity.
(3)
Notice of a change of a director’s service address must be accompanied by
confirmation of the director’s usual residential address or, as the case may be,
that the service address is his usual residential address.
(4)
If default is made in complying with this section, an offence is committed by—
25
(a)
the company, and
(b)
every officer of the company who is in default.

For this purpose a shadow director is treated as an officer of the company.
(5)
A person guilty of an offence under this section is liable on summary
conviction to a fine not exceeding level 5 on the standard scale and, for
30
continued contravention, a daily default fine not exceeding one-tenth of level
5 on the standard scale.
150
Application of provisions to shadow directors
A shadow director is treated as a director for the purposes of—
sections 144 to 146 (register of directors), and
35
section 147 (register of directors’ residential addresses),
but not for the purposes of section 149 (duty to notify registrar).

Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 1 — Appointment and removal of directors
67

Removal
151
Resolution to remove director
(1)
A company may by ordinary resolution at a meeting remove a director before
the expiration of his period of office, notwithstanding anything in any
agreement between it and him.
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(2)
Special notice is required of a resolution to remove a director under this section
or to appoint somebody instead of a director so removed at the meeting at
which he is removed.
(3)
A vacancy created by the removal of a director under this section, if not filled
at the meeting at which he is removed, may be filled as a casual vacancy.
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(4)
A person appointed director in place of a person removed under this section is
treated, for the purpose of determining the time at which he or any other
director is to retire, as if he had become director on the day on which the person
in whose place he is appointed was last appointed a director.
(5)
This section is not to be taken—
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(a)
as depriving a person removed under it of compensation or damages
payable to him in respect of the termination of his appointment as
director or of any appointment terminating with that as director, or
(b)
as derogating from any power to remove a director that may exist apart
from this section.
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152
Director’s right to protest removal
(1)
On receipt of notice of an intended resolution to remove a director under
section 151, the company must forthwith send a copy of the notice to the
director concerned.
(2)
The director (whether or not a member of the company) is entitled to be heard
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on the resolution at the meeting.
(3)
Where notice is given of an intended resolution to remove a director under that
section, and the director concerned makes with respect to it representations in
writing to the company (not exceeding a reasonable length) and requests their
notification to members of the company, the company shall, unless the
30
representations are received by it too late for it to do so—
(a)
in any notice of the resolution given to members of the company state
the fact of the representations having been made; and
(b)
send a copy of the representations to every member of the company to
whom notice of the meeting is sent (whether before or after receipt of
35
the representations by the company).
(4)
If a copy of the representations is not sent as required by subsection (3) because
received too late or because of the company's default, the director may
(without prejudice to his right to be heard orally) require that the
representations shall be read out at the meeting.
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(5)
Copies of the representations need not be sent out and the representations need
not be read out at the meeting if, on the application either of the company or of
any other person who claims to be aggrieved, the court is satisfied that the
rights conferred by this section are being abused.

Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 2 — General duties of directors
68

(6)
The court may order the company's costs (in Scotland, expenses) on an
application under subsection (5) to be paid in whole or in part by the director,
notwithstanding that he is not a party to the application.
Chapter 2
General duties of directors
5
Introductory
153
Scope and nature of general duties
(1)
The general duties specified in sections 154 to 160 are owed by a director of a
company to the company.
(2)
A person who ceases to be a director continues to be subject—
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(a)
to the duty in section 158 (duty to avoid conflicts of interest) as regards
the exploitation of any property, information or opportunity of which
he became aware at a time when he was a director, and
(b)
to the duty in section 159 (duty not to accept benefits from third parties)
as regards things done or omitted by him before he ceased to be a
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director.

To that extent those duties apply to a former director as to a director, subject to
any necessary adaptations.
(3)
The general duties are based on certain common law rules and equitable
principles as they apply in relation to directors and have effect in place of those
20
rules and principles as regards the duties owed to a company by a director.
(4)
The general duties shall be interpreted and applied in the same way as
common law rules or equitable principles, and regard shall be had to the
corresponding common law rules and equitable principles in interpreting and
applying the general duties.
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(5)
The general duties apply to shadow directors where, and to the extent that, the
corresponding common law rules or equitable principles so apply.
The general duties
154
Duty to act within powers

A director of a company must—
30
(a)
act in accordance with the company’s constitution, and
(b)
only exercise powers for the purposes for which they are conferred.
155
Duty to promote the success of the company
(1)
A director of a company must act in the way he considers, in good faith, would
be most likely to promote the success of the company for the benefit of its
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members as a whole, and in doing so have regard (amongst other matters) to—
(a)
the likely consequences of any decision in the long term,
(b)
the interests of the company’s employees,

Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 2 — General duties of directors
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(c)
the need to foster the company’s business relationships with suppliers,
customers and others,
(d)
the impact of the company’s operations on the community and the
environment,
(e)
the desirability of the company maintaining a reputation for high
5
standards of business conduct, and
(f)
the need to act fairly as between members of the company.
(2)
Where or to the extent that the purposes of the company consist of or include
purposes other than the benefit of its members, subsection (1) has effect as if
the reference to promoting the success of the company for the benefit of its
10
members were to achieving those purposes.
(3)
The duty imposed by this section has effect subject to any enactment or rule of
law requiring directors, in certain circumstances, to consider or act in the
interests of creditors of the company.
156
Duty to exercise independent judgment
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(1)
A director of a company must exercise independent judgment.
(2)
This duty is not infringed by his acting—
(a)
in accordance with an agreement duly entered into by the company
that restricts the future exercise of discretion by its directors, or
(b)
in a way authorised by the company’s constitution.
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157
Duty to exercise reasonable care, skill and diligence
(1)
A director of a company must exercise reasonable care, skill and diligence.
(2)
This means the care, skill and diligence that would be exercised by a
reasonably diligent person with—
(a)
the general knowledge, skill and experience that may reasonably be
25
expected of a person carrying out the functions carried out by the
director in relation to the company, and
(b)
the general knowledge, skill and experience that the director has.
158
Duty to avoid conflicts of interest
(1)
A director of a company must avoid a situation in which he has, or can have, a
30
direct or indirect interest that conflicts, or possibly may conflict, with the
interests of the company.
(2)
This applies in particular to the exploitation of any property, information or
opportunity (and it is immaterial whether the company could take advantage
of the property, information or opportunity).
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(3)
This duty does not apply to a conflict of interest arising in relation to a
transaction or arrangement with the company.
(4)
This duty is not infringed—
(a)
if the situation cannot reasonably be regarded as likely to give rise to a
conflict of interest; or
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(b)
if the matter has been authorised by the directors.
(5)
Authorisation may be given by the directors—

Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 2 — General duties of directors
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(a)
where the company is a private company and nothing in the company’s
constitution invalidates such authorisation, by the matter being
proposed to and authorised by the directors; or
(b)
where the company is a public company and its constitution includes
provision enabling the directors to authorise the matter, by the matter
5
being proposed to and authorised by them in accordance with the
constitution.
(6)
The authorisation is effective only if—
(a)
any requirement as to the quorum at the meeting at which the matter is
considered is met without counting the director in question or any
10
other interested director, and
(b)
the matter was agreed to without their voting or would have been
agreed to if their votes had not been counted.
(7)
Any reference in this section to a conflict of interest includes a conflict of
interest and duty and a conflict of duties.
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159
Duty not to accept benefits from third parties
(1)
A director of a company must not accept a benefit from a third party conferred
by reason of—
(a)
his being a director, or
(b)
his doing (or not doing) anything as director.
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(2)
A “third party” means a person other than the company, an associated body
corporate or a person acting on behalf of the company or an associated body
corporate.
(3)
Benefits received by a director from a person by whom his services (as a
director or otherwise) are provided to the company are not regarded as
25
conferred by a third party.
(4)
This duty is not infringed if the acceptance of the benefit cannot reasonably be
regarded as likely to give rise to a conflict of interest.
(5)
Any reference in this section to a conflict of interest includes a conflict of
interest and duty and a conflict of duties.
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160
Duty to declare interest in proposed transaction or arrangement
(1)
If a director of a company is in any way, directly or indirectly, interested in a
proposed transaction or arrangement with the company, he must declare the
nature and extent of that interest to the other directors.
(2)
The declaration may (but need not) be made—
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(a)
at a meeting of the directors, or
(b)
by notice to the directors in accordance with—
(i)
section 167 (notice in writing), or
(ii)
section 168 (general notice).
(3)
If a declaration of interest under this section proves to be, or becomes,
40
inaccurate or incomplete, a further declaration must be made.
(4)
Any declaration required by this section must be made before the company
enters into the transaction or arrangement.

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Part 10 — Company directors
Chapter 2 — General duties of directors
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(5)
This section does not require a declaration of an interest of which the director
is not aware or where the director is not aware of the transaction or
arrangement in question.

For this purpose a director is treated as being aware of matters of which he
ought reasonably to be aware.
5
(6)
A director need not declare an interest—
(a)
if it cannot reasonably be regarded as likely to give rise to a conflict of
interest;
(b)
if, or to the extent that, the other directors are already aware of it (and
for this purpose the other directors are treated as aware of anything of
10
which they ought reasonably to be aware); or
(c)
if, or to the extent that, it concerns terms of his service contract that have
been or are to be considered—
(i)
by a meeting of the directors, or
(ii)
by a committee of the directors appointed for the purpose under
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the company’s constitution.
Supplementary provisions
161
Civil consequences of breach of general duties
(1)
The consequences of breach (or threatened breach) of sections 154 to 160 are the
same as would apply if the corresponding common law rule or equitable
20
principle applied.
(2)
The duties in those sections (with the exception of section 157 (duty to exercise
reasonable care, skill and diligence)) are, accordingly, enforceable in the same
way as any other fiduciary duty owed to a company by its directors.
162
Cases within more than one of the general duties
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Except as otherwise provided, more than one of the general duties may apply
in any given case.
163
Consent, approval or authorisation by members
(1)
In a case where—
(a)
section 158 (duty to avoid conflicts of interest) is complied with by
30
authorisation by the directors, or
(b)
section 160 (duty to declare interest in proposed transaction or
arrangement) is complied with,

the transaction or arrangement is not liable to be set aside by virtue of any
common law rule or equitable principle requiring the consent or approval of
35
the members of the company.

This is without prejudice to any enactment, or provision of the company’s
constitution, requiring such consent or approval.
(2)
The application of the general duties is not affected by the fact that the case also
falls within Chapter 4 (transactions requiring approval of members), except
40
that where that Chapter applies and—
(a)
approval is given under that Chapter, or
(b)
the matter is one as to which it is provided that approval is not needed,

Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 2 — General duties of directors
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it is not necessary also to comply with section 158 (duty to avoid conflicts of
interest) or section 159 (duty not to accept benefits from third parties).
(3)
Compliance with the general duties does not remove the need for approval
under any applicable provision of Chapter 4 (transactions requiring approval
of members).
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(4)
The general duties have effect subject to any rule of law enabling the company
to give authority, specifically or generally, for anything to be done (or omitted)
by the directors, or any of them, that would otherwise be a breach of duty.
(5)
Otherwise, the general duties have effect (except as otherwise provided or the
context otherwise requires) notwithstanding any enactment or rule of law.
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164
Modification of provisions in relation to charitable companies
(1)
In their application to a company that is a charity, the provisions of this
Chapter have effect subject to this section.
(2)
Section 158 (duty to avoid conflicts of interest) has effect as if—
(a)
for subsection (3) (which disapplies the duty to avoid conflicts of
15
interest in the case of a transaction or arrangement with the company)
there were substituted—
“(3)
This duty does not apply to a conflict of interest arising in
relation to a transaction or arrangement with the company if or
to the extent that the company’s articles allow that duty to be so
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disapplied, which they may do only in relation to descriptions
of transaction or arrangement specified in the company’s
articles.”;
(b)
for subsection (5) (which specifies how directors of a company may
give authority under that section for a transaction or arrangement)
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there were substituted—
“(5)
Authorisation may be given by the directors where the
company’s constitution includes provision enabling them to
authorise the matter, by the matter being proposed to and
authorised by them in accordance with the constitution.”.
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(3)
Section 163(2)(b) (which disapplies certain duties under this Chapter in
relation to cases excepted from requirement to obtain approval by members
under Chapter 4) applies only if or to the extent that the company’s articles
allow those duties to be so disapplied, which they may do only in relation to
descriptions of transaction or arrangement specified in the company’s articles.
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(4)
After section 26(5) of the Charities Act 1993 (c. 10) (power of Charity
Commission to authorise dealings with charity property etc) insert—
“(5A)
In the case of a charity that is a company, an order under this section
may authorise an act notwithstanding that it involves the breach of a
duty imposed on a director of the company under Chapter 2 of Part 10
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of the Company Law Reform Act 2006 (general duties of directors).”.
(5)
This section does not extend to Scotland or Northern Ireland.