Directors & officers

Directors’ duties under the Companies Act 2006

In short: Sections 171 to 177 of the Companies Act 2006 set out the seven general duties a director owes to the company: to act within powers, to promote the success 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, and to declare an interest in a proposed transaction. Directors’ and officers’ insurance responds to allegations that those duties were breached — principally by funding defence costs — but it does not indemnify everything a director might face.

Category: Directors & officers
Also known as: general duties of directors, CA 2006 ss.171-177, statutory directors duties
Related concepts: directors’ and officers’ insurance, ICO

Where the duties come from

The general duties of directors were codified by the Companies Act 2006 and are set out in Chapter 2 of Part 10. Section 170 deals with scope and nature: the duties are owed by a director to the company, they are based on certain common law rules and equitable principles, and they are to be interpreted and applied in the same way as those rules and principles. Because the duties are owed to the company, it is normally the company — or, after an insolvency, a liquidator or administrator — that brings the claim, not a shareholder or a creditor directly.

The seven general duties

Section 171 — duty to act within powers. A director must act in accordance with the company’s constitution and only exercise powers for the purposes for which they are conferred.

Section 172 — duty to promote the success of the company. A director must act in the way he considers, 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 the likely long-term consequences of decisions, the interests of employees, the need to foster business relationships with suppliers and customers and others, the impact of operations on the community and the environment, the desirability of maintaining a reputation for high standards of business conduct, and the need to act fairly as between members.

Section 173 — duty to exercise independent judgment. The duty is not infringed by acting in accordance with an agreement duly entered into by the company that restricts the future exercise of discretion, or in a way authorised by the company’s constitution.

Section 174 — duty to exercise reasonable care, skill and diligence. The standard is that of a reasonably diligent person with both the general knowledge, skill and experience that may reasonably be expected of someone carrying out that director’s functions, and the general knowledge, skill and experience that the director actually has. It is objective with a subjective uplift: a qualified accountant on a board cannot claim the standard of a layperson.

Section 175 — duty to avoid conflicts of interest. A director must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. It applies in particular to the exploitation of any property, information or opportunity, and it is immaterial whether the company could take advantage of it. There are exceptions, including authorisation by the directors in the circumstances the section allows.

Section 176 — duty not to accept benefits from third parties. A director must not accept a benefit from a third party conferred by reason of being a director or of doing, or not doing, anything as a director, unless acceptance cannot reasonably be regarded as likely to give rise to a conflict of interest.

Section 177 — duty to declare interest in proposed transaction or arrangement. A director who is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company must declare the nature and extent of that interest to the other directors before the company enters into it.

Consequences of breach

The Act does not create a new remedial code. The consequences of breach of sections 171 to 177 are the same as would apply if the corresponding common law rule or equitable principle applied. In practice that means the familiar remedies: damages or equitable compensation, restoration of company property, rescission of a contract, an account of profits. Duties in the Act sit alongside, and do not displace, other exposures a director may face — wrongful and fraudulent trading, health and safety and environmental prosecutions, competition and data protection investigations, and disqualification proceedings.

Where D&O insurance fits

Section 232 of the Companies Act 2006 makes void, in general terms, provisions exempting a director from or indemnifying a director against liability for negligence, default, breach of duty or breach of trust in relation to the company. Section 233 then makes clear that this does not prevent a company from purchasing and maintaining insurance for a director against such liability. That is the statutory basis on which directors’ and officers’ insurance exists: the company cannot simply promise to indemnify, but it can buy cover.

What D&O actually delivers, in most claims, is defence costs. A director facing an allegation of breach of section 172 or section 174 needs lawyers long before anyone establishes whether the allegation is good, and the costs of an investigation or a disqualification defence can be significant even when the outcome is complete vindication. Policies also indemnify civil liability for wrongful acts within the definition, and commonly extend to investigation costs and to company reimbursement where the company has lawfully indemnified the director.

What D&O does not do

Being precise here matters more than selling the product. D&O does not pay criminal fines and civil penalties where insuring them is contrary to law or public policy — whether a particular penalty is insurable is a legal question, and policies are drafted accordingly. It does not, once dishonesty or a deliberate breach is established by final adjudication, indemnify the director for it; conduct exclusions are usually written to fall away only at that point, so defence costs are typically advanced in the meantime. It does not cover the disgorgement of profits or remuneration to which the director was never legally entitled. It is not a substitute for the company’s own professional indemnity or cyber cover, and it does not respond to the company’s trading losses. And it does nothing to cure a governance problem: minutes, conflict declarations under section 177, and evidence of section 172 factors actually being considered are what defend a claim.

Frequently asked questions

What are the seven general duties of a director?

Sections 171 to 177 of the Companies Act 2006: to act within powers, to promote the success 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, and to declare an interest in a proposed transaction or arrangement.

Can a company indemnify a director against breach of duty?

Section 232 makes provisions exempting or indemnifying a director against liability for negligence, default, breach of duty or breach of trust in relation to the company void in general terms, subject to the exceptions the Act sets out. Section 233 confirms that this does not prevent the company from purchasing and maintaining insurance against such liability.

Does D&O insurance cover fines and penalties?

Not where insuring the fine or penalty would be contrary to law or public policy, which covers most criminal fines. The practical value of D&O is usually the defence and investigation costs, which are incurred long before liability is decided, together with indemnity for civil liability that falls within the policy definition of a wrongful act.

Related entries

This entry is part of the Apex Insurance Wiki. It is insurance information about how UK cover responds to the rules described, and is not legal or regulatory advice. Rules, limits and wordings change; the position stated is as at August 2026. Check the primary source and take your own professional advice before relying on any of it.

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