Duty to Promote the Success of the Company – A Reminder for Directors

Pursuant to Section 172 of the Companies Act 2006, 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 (shareholders) as a whole. In so doing, the director must have regard, amongst many other matters, to the likely consequences of any decision in the long term, the interests of the company’s employees and the need to develop the company’s business relationships with suppliers, customers and others.

It is more likely that a decision will not be deemed in good faith where it is not a decision that a reasonable and intelligent director could have concluded would promote the success of the company. Note that, interestingly, where a company is insolvent, the director’s duty is instead to consider or act in the interests of the creditors of the company rather than its members (shareholders).

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