One of the most significant aspects of the Companies Act 2006 is the codification of directors’ duties. They will apply to all directors, including shadow directors and, in some cases, former directors.

The codification is not a compete abandonment of the common law position. The courts will have regard to existing common law rules and equitable principles in interpreting and applying the codified duties.

Directors’ duties are owed to the company and only the company is able to enforce them (subject to derivative actions - see below). The Act imposes seven general duties upon a director:

		To act within his powers
		To promote the success of the company for the benefit of its members as a whole including by having regard to:
		-	The likely long-term consequences of any decision in the long term
		-	The interests of the company’s employees
		-	The need to foster the company’s business relationships with suppliers, customers and others
		-	The impact of the company’s operations on the community and the environment
		-	The desirability of the company maintaining a reputation for high standards of business conduct
		-	The need to act fairly as between members of the company
		To exercise independent judgment
		To exercise reasonable care, skill and diligence
		To avoid conflicts of interest
		Not to accept benefits from third parties
		To declare interest in proposed transactions or arrangements with the company.

The aim of codification is to provide an authoritative statement of what directors’ duties are. Critics of codification point to the lack of flexibility which codification provides and the combined effects of codification with the changes to the rules on derivative actions (see below). It particular, it has been argued that bureaucracy may increase, as directors adopt a practice of formally documenting their decision making processes in accordance with the factors set out above (note that this is not a requirement of the Act). It has also been suggested that the introduction of a non-exhaustive list of factors which directors must consider when acting in accordance with their duty to promote the success of the company makes it likely that the court will intervene in matters previously left to directors’ judgment. It remains uncertain as to whether this will prove to be the case.

Under the Act, a company is able to ratify conduct by a director which otherwise would amount to negligence, default, breach of duty or breach of trust in relation to that company. The decision to ratify must be made by resolution of the shareholders. Neither the director concerned (if a shareholder of the company) nor any shareholder connected with him is eligible to vote on such a resolution.