Directors — appointment, duties, removal

BLP.05 — Directors: appointment, duties, removal

Who is a director?

• A de jure director is validly appointed. A de facto director acts as part of the company's corporate governing structure without a valid appointment; the substance of the role matters, not just the title (Holland v HMRC [2010] UKSC 51).
• A shadow director is someone in accordance with whose directions or instructions the directors are accustomed to act. Professional advice alone does not make the adviser a shadow director; the statutory exclusions also cover specified statutory and ministerial guidance. General duties apply to shadow directors where and to the extent capable of applying (ss.251, 170(5), Companies Act 2006).
• A private company needs at least one director, a public company two; at least one must be a natural person. An individual must be at least 16 (ss.154–157).

Appointment and leaving office

• Under private-company Model Article 17, members may appoint by ordinary resolution, or the directors may appoint. Check the actual articles. Private Model Articles do not require retirement by rotation; the public-company Model Articles contain retirement rules in article 21.
• Notify Companies House of an appointment within 14 days, with the required particulars and statements (s.167G). Since 18 November 2025, new individual directors must have their identity verified before acting (s.167M). Existing directors have transitional arrangements linked to their company's next confirmation statement during the 12-month transition; do not assume every existing director had to verify on the first day (SI 2025/1118, reg 4).
• Companies no longer keep their own statutory register of directors following the changes effective on 18 November 2025. Changes to required information and cessation must still be notified to the registrar within 14 days of the change or cessation (ss.167G–167H).
• Check the articles for automatic cessation. Private Model Article 18 includes legal prohibition, bankruptcy, a composition with creditors generally, a written opinion to the company from a registered medical practitioner treating the director that the director has become physically or mentally incapable of acting as a director and may remain so for more than three months, and effective notice of resignation.

General duties: owed to the company

• s.171: act in accordance with the constitution and use powers only for the purposes for which they were conferred.
• s.172: act in the way the director considers, in good faith, most likely to promote the company's success for the members as a whole. Have regard to long-term consequences, employees, business relationships, community and environmental effects, reputation for high standards of conduct, and fairness between members.
• Financial distress: the duty is modified to require consideration of creditors' interests when the company is insolvent or bordering on insolvency, or insolvent liquidation or administration is probable. A mere real risk of future insolvency is insufficient. Before insolvent liquidation or administration is inevitable, creditors' and members' interests may need balancing, with increasing weight given to creditors as financial distress worsens; once it is inevitable, creditors' interests are paramount. The duty remains owed to the company, not directly to individual creditors. BTI v Sequana [2022] UKSC 25 left open aspects of the directors' knowledge requirement; directors must keep informed about the company's finances. A disputed liability is not merely contingent: where solvency depends on successfully challenging a large existing claim, the creditor duty can arise if the directors know or ought to know that there is at least a real prospect of the challenge failing (Hunt v Singh [2023] EWHC 1784 (Ch), [47]–[54]).
• s.173: exercise independent judgment. This does not prevent acting under an agreement duly entered into by the company that restricts future discretion, or in a way authorised by the constitution.
• s.174: exercise reasonable care, skill and diligence. The objective standard is the knowledge, skill and experience reasonably expected of a person carrying out those functions; the director's actual knowledge, skill and experience can raise, but cannot lower, that standard.
• s.175: avoid situations involving a direct or indirect interest that conflicts, or possibly may conflict, with the company's interests, including exploitation of property, information or opportunity. It is immaterial whether the company could itself exploit the opportunity. The duty does not apply to conflicts arising from transactions with the company, or situations that cannot reasonably be regarded as likely to give rise to a conflict.
• Authorising a s.175 conflict: a private company's board may authorise if its constitution does not invalidate that authorisation; a public company's constitution must positively permit it. For a private company incorporated before 1 October 2008, the members must also have passed the enabling resolution required by SI 2007/3495, Sch 4 para 47. The quorum must be met without the interested directors, and the matter must be agreed without their votes, or would have been agreed if their votes had not been counted (s.175(5)–(6)).
• s.176: do not accept a third-party benefit conferred because of being a director, or doing or not doing something as a director. There is no breach if accepting it cannot reasonably be regarded as likely to give rise to a conflict. Board authorisation under s.175 is not a general power to authorise third-party benefits; members' authorisation and relevant constitutional provisions are separate matters (s.180(4)).
• s.177: declare the nature and extent of an interest in a proposed transaction or arrangement with the company before it is entered into, subject to the statutory exceptions. For an existing transaction, s.182 requires declaration as soon as reasonably practicable; breach can be a criminal offence (s.183). The exceptions include interests that cannot reasonably be regarded as likely to give rise to a conflict and matters the other directors already know or ought reasonably to know.
• A sole director has no other director to whom to make a s.182 declaration, but must record it in writing if the company is required to have more than one director (s.186).
• Former directors remain subject to s.175 for property, information or opportunities learned of while in office, and s.176 for things done or omitted before leaving (s.170(2)).

Transactions needing members' approval

Board approval or disclosure of an interest does not replace a separate statutory requirement for members' approval. The following normally require an ordinary resolution, subject to the relevant exceptions.

• Long service contracts (ss.188–189): approval is needed where the guaranteed term of employment is, or may be, longer than two years. The guaranteed term aggregates any period during which the employment continues, or may be continued otherwise than at the company's instance, and the company cannot end it by notice (or can do so only in specified circumstances), with any notice period the company must give. A further contract made more than six months before the existing guaranteed term ends is treated as including that term's unexpired period (s.188(3)–(4)). Without approval, the offending provision is void and the contract is treated as terminable on reasonable notice. The required memorandum must accompany a written resolution, or be available at the registered office for at least 15 days ending with the meeting and at the meeting.
• Substantial property transactions (ss.190–191): a company acquiring a substantial non-cash asset from, or transferring one to, its director, a director of its holding company or a connected person needs approval, or an arrangement conditional on approval. An asset is substantial if it exceeds £100,000, or both exceeds £5,000 and exceeds 10% of the company's asset value. Asset value means net assets in the most recent statutory accounts, or called-up share capital if there are no statutory accounts. Aggregate assets in the arrangement or a series. Check the statutory exceptions. Unapproved transactions are generally voidable, subject to protections in s.195, and can produce accounting and indemnity liabilities.
• Loans (ss.197–214): a loan to a director of the company or its holding company, or a guarantee or security for such a loan, normally needs approval. Public companies and companies associated with them face additional rules for quasi-loans, connected persons and credit transactions. Exceptions include aggregate relevant loans or quasi-loans not exceeding £10,000, qualifying credit transactions not exceeding £15,000, and qualifying expenditure on company business or directors' duties not exceeding £50,000 in aggregate. There are further exceptions for specified litigation/regulatory expenditure, intra-group transactions and qualifying ordinary-course lending. Check the applicable exception and its conditions; a private company's status alone does not exempt a director's loan. The prescribed transaction memorandum accompanies a written resolution or is available for the 15-day period and at the meeting.
• Loss-of-office payments (ss.215–222): payments by the company normally need approval, with disclosure by memorandum. Exceptions include payments made in good faith in discharge of an existing legal obligation (one not entered into in connection with, or in consequence of, the loss of office), by way of damages for breach of such an obligation, by way of settlement or compromise of a claim arising in connection with the termination, or by way of pension for past services (s.220). The £200 exception applies to qualifying payments by the company or its subsidiaries, aggregated with the other relevant payments under s.221. Separate rules cover payments connected with transfers of an undertaking, property or shares.
• Some transactions involving a holding-company director also need the holding company's approval. The relevant sections exempt the members of a wholly-owned subsidiary from giving approval; that does not remove any approval required from another company. Do not confuse this with an exemption from directors' duties.

Removal, remedies and ratification

• Members can remove a director by ordinary resolution at a meeting under s.168, notwithstanding an agreement with the director. A written resolution cannot be used (s.288(2)). Removal does not itself extinguish contractual compensation or damages rights.
• Special notice of the intended resolution must normally reach the company at least 28 days before the meeting (ss.168(2), 312). The company must immediately send a copy to the director. Under s.169, the director may be heard at the meeting and request notification of written representations. If they are received too late for circulation, or the company defaults, the director may require them to be read out. The court can prevent abuse of these rights.
• Articles can provide weighted voting on a removal resolution: Bushell v Faith [1970] AC 1099. Removal may also support an unfair-prejudice claim on the facts; it is distinct from statutory disqualification.
• Civil consequences of breach follow s.178, including compensation, an account of profits or rescission where applicable. Member ratification under s.239 has special rules excluding the director's and connected members' support; see BLP.06. Some conduct cannot be ratified. The court may grant relief under s.1157 where a director acted honestly and reasonably and ought fairly to be excused. A provision exempting a director from liability to the company for negligence, default, breach of duty or breach of trust is void (s.232).
• Board participation is separate: under private Model Article 14, an interested director ordinarily cannot count in the quorum or vote on the relevant transaction decision. The specified exceptions include members disapplying the restriction by ordinary resolution, an interest not reasonably likely to give rise to a conflict, and a permitted cause. Disclosure alone does not remove the restriction.

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