The Companies Act 2006 requires directors: to act in accordance with the constitution and to exercise powers only for the purposes for which they are conferred. This chapter focuses on s 171. Typically, all powers of management are vested in the board, but issues arise around the authority of individual directors too. The discussion covers the constitutional division of power within a company, the different types of authority and the statutory protection provided for third parties by CA 2006, s 40. A key constraint on directors’ power is the obligation to act only for a proper purpose in s 171(b) which has been the subject of important caselaw, including from the Supreme Court, which is discussed in detail.
Chapter
9. Duty to act within constitution and powers
Chapter
9. The role and powers of the directors
This chapter describes the directors’ role, including the powers of the directors, the division of power between the directors and the members, and how the directors exercise their powers. In smaller companies, directors will manage the company and will delegate little, if any, of their powers. In larger companies, the directors will set the strategic direction of the company and will delegate much of their managerial powers to sub-board level managers. The powers of the directors are a matter for the company’s articles, with most articles providing that the directors are responsible for managing the company and that it may exercise all the company’s powers. Moreover, a company’s articles usually provide the directors with the ability to delegate their powers to others. The principal method by which the directors exercises their managerial powers is via board meetings.
Chapter
9. Duty to act within constitution and powers
The Companies Act 2006 (CA 2006) requires directors: to act in accordance with the constitution (defined s 257) and to exercise powers for the purposes for which they are conferred. This chapter focuses on s 171. The discussion covers the constitutional division of power within a company, types of authority, statutory protection of third parties, and exercise of a power for an improper purpose. Much of the discussion is of the important agency rules which govern directors’ authority, considering in particular the extent to which third parties can rely on the apparent or ostensible authority of an individual director or directors. The circumstances in which third parties are put on inquiry are considered. The statutory protection afforded to third parties by CA 2006, s 40 is also examined. The proper purpose doctrine is an important constraint on abuse of power by directors and the application of the doctrine is addressed in detail.
