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Company Law Reform Bill

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Companies Act 2006 (‘the Act’), which received Royal Assent on the 8th November 2006, codifies directors’ duties including the long-established fiduciary duties as well as the common law duty of care and skill into a statutory statement of seven general duties. The main proposals in respect of the Directors’ duties include a statutory statement of directors’ general duties. and an extended power for shareholders to sue directors for negligence and other defaults. Presently the general duties that a director owes to the company were invariably established through case law rather than statute making it difficult for such duties to be comprehended and pressed for implementation. The Bill includes a statutory statement of directors’ general duties both to make the law in this area more accessible and to change the law where it no longer corresponds to modern business practice. The clauses 170-187 of the Companies Bill 2006 carry a major portion of such codification Other changes are made which affect directors, including simplification of the law relating to transactions between a company and its directors. This paper would discuss the changes brought about in the new legislation in respect of directors’ duties and how these changes present an altered and improved stance over the hitherto adopted practice of deriving directors’ duties through an interpretation of case laws. The governments intended to plain speak on the directors’ duties so as to make the law more consistent, certain, accessible and comprehensible. This was achieved through a statutory statement of directors’ general duties along with plain-language guidance explaining the duties. On the issue of the liability of directors, the governments’ Government recognized that the law has to balance the need to deal fairly with directors who have been negligent or dishonest against the need for companies to have a diverse pool of high-quality candidates wishing to act asdirectors, and who are willing to make informed and rational risks.