Directors' duties: the seven general duties, and declaring an interest

You have just joined a board, or you have sat on one for years and someone is now asking whether a decision you made was a breach of duty. Either way, the law starts with eight sections of the Companies Act 2006. Sections 171 to 177 set out the seven general duties every director owes. Section 182 adds a separate obligation to declare an interest in a transaction the company has already entered into, and breaking that one is a criminal offence.

7

general duties, in sections 171 to 177, owed to the company

s.183

failing to declare under s.182 is an offence

10 years

minimum time to keep board minutes

Who the duties are owed to

Section 170(1) is one sentence: "The general duties specified in sections 171 to 177 are owed by a director of a company to the company." As the Explanatory Notes to the Act say, only the company can enforce them; a shareholder normally has to bring a derivative claim (below).

Three points of scope:

• Leaving does not end everything. A former director remains bound by the conflicts duty as regards property, information or opportunities learned of while in office, and by the third-party benefits duty for things done or not done before leaving (section 170(2)).
• The title does not matter. "Director" includes "any person occupying the position of director, by whatever name called" (section 250), and the duties apply to a shadow director "where and to the extent that they are capable of so applying" (section 170(5)).
• The old case law still counts. The duties replaced earlier common law and equitable rules, and are read with them (section 170(3) and (4)).

The seven duties at a glance

More than one duty can apply to the same decision (section 179).

The duties that need the most care

Section 172. You must act in the way you consider, in good faith, "would be most likely to promote the success of the company for the benefit of its members as a whole", having regard (among other matters) to six listed factors: the long-term consequences, the employees' interests, relationships with suppliers and customers, the impact on the community and the environment, the company's reputation for high standards of business conduct, and fairness between members. The test is your own good-faith judgment, but the board papers and minutes should show the factors were actually considered.

Section 174. The standard has two limbs. Section 174(2) defines it as the care, skill and diligence of a reasonably diligent person with:

"(a) the general knowledge, skill and experience that may reasonably be 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."

The first limb is an objective floor, set by the job you actually do. The second raises the bar if you personally bring more: a chartered accountant on the board is judged with an accountant's knowledge. Inexperience never takes you below the floor.

Section 175. You must avoid a situation in which you have, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the company's. That applies in particular to exploiting property, information or opportunities — and "it is immaterial whether the company could take advantage" of them, so "the company could not have done the deal anyway" is no answer. A conflict between two of your duties counts too, which matters if you sit on more than one board (section 175(7)).

There is no breach if the situation cannot reasonably be regarded as likely to give rise to a conflict, or if the directors have authorised it. A private company's board can authorise unless its constitution prevents it; a public company's board only if its constitution allows. Either way, the authorisation is effective only if the quorum is met, and the decision reached, without counting the interested directors (section 175(4) to (6)).

Section 176. A benefit from a third party, given because you are a director or for what you do as one, is caught unless accepting it "cannot reasonably be regarded as likely to give rise to a conflict of interest". Unlike section 175, there is no procedure for the board to authorise it.

Declaring an interest: proposed and existing transactions

A conflict arising from a transaction with the company itself — a contract with a business you own, say — falls outside section 175 (section 175(3)). It is handled by declaration, and which section applies depends on timing.

The two work in much the same way:

• How. At a board meeting, by notice in writing to the other directors (section 184), or by general notice (section 185). Section 182 insists on one of these; section 177 allows them without insisting. A general notice covers future dealings with a named company, firm or connected person, but only if given at a meeting, or if you take reasonable steps to have it read at the next one.
• What. The nature and extent of the interest, direct or indirect. You need not be a party yourself: the Explanatory Notes give the example of a director's spouse contracting with the company.
• Keeping it current. If a declaration proves to be, or becomes, inaccurate or incomplete, make a further one.
• When none is needed. If the interest cannot reasonably be regarded as likely to give rise to a conflict; if the other directors already know of it, or ought reasonably to; or if it concerns your own service contract and that is considered by the board or a committee. You are treated as aware of anything you ought reasonably to be aware of.

Under section 183, a director who fails to comply with section 182 commits an offence punishable by a fine. According to the Explanatory Notes, the offence does not affect the validity of the transaction and carries no other civil consequences. A sole director of a company required to have more than one director must record the declaration in writing (section 186); a shadow director must declare in writing (section 187).

Section 177 works the other way round. A breach is not a crime, but the remedies listed in the Explanatory Notes include rescinding the contract. And neither declaration replaces the shareholder approval the Act separately requires for long-term service contracts, substantial property transactions, loans to directors and payments for loss of office (section 180(3)).

When the company is in financial difficulty

Section 172(3) makes the duty to promote success "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". In BTI 2014 LLC v Sequana SA [2022] UKSC 25 the Supreme Court confirmed that such a rule exists. It is not a separate duty owed to creditors: it changes what acting in the company's interests means, so that those interests include creditors' interests as a whole.

The majority held that it is engaged when the directors know, or ought to know, that the company is insolvent or bordering on insolvency, or that an insolvent liquidation or administration is probable. (Two of the five justices left open whether that knowledge is essential.)

1. 1

   Solvent, with insolvency not in view

   Promote the success of the company for the benefit of its members as a whole, as section 172(1) says.

2. 2

   A real but not remote risk of insolvency

   Not enough on its own. The Supreme Court held in Sequana that this does not engage the duty to consider creditors.

3. 3

   Insolvent, bordering on it, or insolvent liquidation probable

   Consider creditors' interests and weigh them against members'. The worse the position, the more weight creditors' interests carry.

4. 4

   Insolvent liquidation or administration inevitable

   Creditors' interests become paramount. Wrongful trading liability under section 214 of the Insolvency Act 1986 is also in play.

Once the duty is engaged, shareholders cannot authorise or ratify a transaction that breaches it. And a dividend that complies with the distribution rules can still breach it: Sequana itself concerned a lawful dividend. Alongside sits wrongful trading under section 214 of the Insolvency Act 1986: a liquidator can seek a contribution from a director who knew, or ought to have concluded, that there was no reasonable prospect of avoiding insolvent liquidation or administration, unless the director then took every step to minimise creditors' potential loss. The same conduct can also lead to disqualification.

If a duty is breached

The remedies. Section 178 keeps the consequences that applied under the old rules, and makes every duty except section 174 enforceable like any other fiduciary duty. The Explanatory Notes list what that can mean: compensation for the company's loss, restoration of its property, an account of the director's profits, and rescission of a contract where an interest was not disclosed. A breach of section 174 is a claim for the loss caused.

Ratification. The company can ratify a director's negligence, default, breach of duty or breach of trust, but only by a resolution of the members, or their unanimous consent (section 239). Votes in favour by the director and by members connected with them are disregarded, and on a written resolution they cannot vote at all. Some acts cannot be ratified — including, as Sequana confirms, a breach of the duty to consider creditors.

Relief. Under section 1157 the court may relieve an officer, wholly or partly, who "acted honestly and reasonably" and ought fairly to be excused. A director who expects a claim can apply before one is made.

Derivative claims. A member can bring a claim on the company's behalf for a director's negligence, default, breach of duty or breach of trust, but only with the court's permission (sections 260 to 264):

• without a prima facie case for permission, the application is dismissed;
• permission must be refused if a person acting in accordance with section 172 would not continue the claim, or if the conduct was authorised or ratified;
• otherwise the court weighs, among other things, the member's good faith, whether the company has decided not to sue, whether the member could sue in their own right, and the views of disinterested members;
• any relief is for the company.

A member whose own interests are unfairly prejudiced can petition under section 994 instead.

What this means for you

• Know the constitution. Section 171 makes the articles, and the resolutions that form part of the constitution, the first test of any decision.
• Minute the reasons, not just the result. Section 248 requires minutes of all directors' meetings, kept for at least ten years. A minute recording the section 172 factors and the advice taken is your best evidence later.
• Keep a conflicts register. The Act does not require one, but it shows what was declared, when, and what the board authorised. Review it at every meeting.
• Declare early, and update. On appointment, and whenever your interests change.
• Watch the numbers. If insolvency comes into view, the duty shifts. Take advice before significant payments.
• Check the D&O insurance. A provision exempting a director from liability for negligence, default, breach of duty or breach of trust is void, and company indemnities are tightly limited (section 232) — but the company may insure its directors against that liability (section 233). Read the exclusions, and check what cover continues after you leave.
• Verify your identity with Companies House. Under the Economic Crime and Corporate Transparency Act 2023 this is now a legal requirement.

An individual must not act as a director unless their identity is verified, and the company must make sure no unverified individual acts (section 167M). Once your verification date has passed, acting unverified is an offence by you and by the company and every officer in default, punishable in England and Wales by a fine — though it does not invalidate what you did as a director. Companies House will not accept a confirmation statement until every director is verified. Verification is free through GOV.UK One Login, or available through an authorised corporate service provider. Among the first convictions, announced in September 2026, was a director who had verified himself but did not take reasonable steps to stop an unverified co-director acting.

What to do now

• Read the articles and any shareholders' agreement, and note what needs shareholder approval.
• Make your declarations of interest and have them minuted.
• Confirm that your identity is verified and linked to each of your directorships.
• Ask for the D&O policy and the latest management accounts.

When to speak to a solicitor

Take advice before the board approves a transaction in which a director is interested, before you take up an opportunity that came to you through the company, as soon as insolvency becomes realistic, and straight away if anyone alleges a breach of duty. We advise boards and individual directors on governance, conflicts and Companies House compliance — see startups and structuring and our company and corporate work — and where a claim is threatened, our civil and commercial litigation team can act. You can also contact us directly.

This guide is general information about the law of England and Wales, not advice on your situation.