Guidance Notes: Directors’ Duties & Conflicts of Interest, Refreshed & Modernised

The legal duties and responsibilities that directors must understand and adhere to are primarily outlined in the Companies Act 2006. These duties focus on responsibilities towards the company and its stakeholders and are set out in sections 171 – 177 of the Companies Act 2006. 

The duties include acting within their powers, promoting the company's success, exercising independent judgment, and avoiding conflicts of interest. Failure to comply with these duties can lead to various consequences, including removal from office, financial penalties, and legal action. 

A recent Court of Appeal decision (Saxon Woods Investments Limited v Francesco Costa [2025] EWCA Civ 708) has considered the duty set out in s.172 of the Companies Act 2006 which requires a director to act in the way they consider, "in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole" and emphasised that, as a core fiduciary duty, this requirement cannot be met where a director has acted dishonestly, and that the test for honesty is not purely subjective, based on whether the director personally believed they were acting in the company's best interests. Rather, honesty is also to be assessed objectively: the court must consider whether the director's conduct was objectively honest, by the standards of ordinary decent people.

In addition, the Court of Appeal's judgment also gives helpful guidance on the relevance of a shareholders' agreement in assessing the meaning of "the success of the company" for the purposes of section 172. Where a shareholders' agreement identifies the shareholders' objectives, it may be taken to indicate what is meant by the company achieving success for the benefit of its members. This suggests that directors taking decisions which run contrary to a provision of a shareholders' agreement may breach section 172. This is a noteworthy development for companies with a shareholders’ agreement in place, which will include many SME private companies. 

Considering this, the guidance on directors’ duties and conflicts of interest has been updated and refreshed. This guidance note also complements and sets in context the various procedural templates for declaring and authorising conflicts of interest, such as board minutes and shareholder resolutions.

The guidance note includes a discussion of:

• the scope of directors’ duties;
• the general duties as set out in sections 171-177 Companies Act 2006;
• situations where a declaration of a conflict of interest is advisable;
• connected persons;
• avoiding conflicts of interest;
• directors with a conflict situation;
• the consequences of a breach of conflict of interest duties; and
• the consequences of a breach of general duties.

This Guidance Note is a useful summary for a company secretary or company director new to the role or a refresher for a more experienced company administrator or director.