Directors are subject to a number of duties which they owe to the company that seek to protect shareholders and ensure directors act with competence. The duties are embodied in the Companies Act 2006.
Section 172 embodies the duty to act to promote the success of the company. A director must act in good faith to promote the success of the company for the benefit of its members as a whole. The test is subjective one - what the directors honestly believe (in good faith) would be most likely to promote the success of the company, and not what objectively might be most likely to do so. Although the interests of the members generally are, the section provides a long list of matters that directors are to "have regard to" in reaching their decisions including the interest of the company's employees and the impact of the company's operations on the community and the environment.
Section 174 contains the duty to exercise reasonable care skill and diligence. This contains both a subjective and objective test: a director must exercise the degree of care, skill and diligence that would be expected pf a reasonably diligent person with the general knowledge, skill and experience that can reasonably be expected of a person occupying that position (objective) and the general knowledge, skill and experience the director actually has (subjective).
The duty to avoid conflicts of interest (s175): a director must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts or may conflict with the interest of the company. Though this does not apply in relation to a transaction or arrangement with the company, provided the appropriate declarations have been made under s177 or under s182.
The consequences for a director who breaches any of the above duties can be very serious. The Act provides that if a breach occurs the consequences are “the same as would apply if the corresponding common law or equitable principle applied” (Section 178).