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What makes good business sense?

Reasons to choose Wilson Browne

When making company decisions, a director’s main priorities lie in achieving the best commercial success for the Company.

Although this makes good business sense directors need to remember the duties imposed on them by the Companies Act 2006 as well as under common law.

The statutory duties are to:

  • act within the constitution of the Company and their powers;
  • promote the success of the Company;
  • exercise independent judgement;
  • exercise reasonable care, skill and diligence;
  • avoid conflicts of interest;
  • not accept benefits from third parties;
  • declare interests in a proposed or existing transactions.

Much has been written about these duties; however directors should be especially cautious where they are making decisions outside of their expertise.

An example of when a director has fallen foul of their duties is Ruscoe Ltd (In Liquidation), where a director carried out a buy-back of shares without taking any professional advice.  Later the Company went into liquidation and the Liquidator argued that the transaction was unlawful as the correct rules and procedures had not been followed.

The court held that the director had breached his duties to the Company, although he had not been dishonest, the failure to take advice was unreasonable.  The court ordered the director to personally pay compensation equal to the purchase price to the Company.

Although this is a rare case, directors should seek specialist advice when making company decisions to ensure their duties to the Company are fulfilled.

If you need advice, contact our Specialist Team