‘Directors duties occupy a strange position in company law. They must be sufficiently strong so as to keep directors in line but sufficiently weak to allow directors to take risks. It is no wonder the courts can’t enforce them properly.’ Do you agree with the above statement?

By any measure the 2006 Act is a momentous and monumental piece of legislation. The largest statute ever enacted by the Westminster Parliament, it has engineered the modernisation, consolidation and codification of the vast panoply of UK company law. The Act subsumed the compendious 1985 Companies Act, and the Companies Act 1989.The modernisation of UK company law necessitated reform, redrafting and reorganisation in many fields. The law relating to directors’ duties received particular attention. Indeed, it is submitted that the reforms made in the context of the law on directors’ duties constitute some of the most important and valuable innovations incorporated in the new Act.
Under s.171 CA 2006 a director must act in accordance with the company’s constitution and only exercise powers for the purposes for which they are conferred. This was formerly known in the case law as the proper purpose rule. In the case of Hogg v Cramphorn Ltd the principle found was that it was not enough that the directors issued the shares in the honest belief that it was in the best interest of the company. Hence the power must have been exercised for its proper purpose. In Howard Smith Ltd v Ampol Petroleum Ltd the Supreme Court if New South Wales held that the shares had been allotted for an improper purpose and was therefore void. Due to this we can come to a conclusion that directors won’t be liable, if they take risks within the confines of the AOA, and if its done for the best interest of the company.
Section 172 CA 2006 provides that the directors must act bona fide in a way that would promote the