A Guide to Directors’ Duties 2026

Company directors in the UK are required by law to comply with seven distinct duties, each of which is intended to ensure they act in the best interests of the company, its shareholders, and wider stakeholders, while maintaining high standards of honesty, care, and accountability in their decision-making.

Whether you are a seasoned company director or new to the role,  you should be aware that the courts are taking an increasingly strict line on directors’ duty compliance. In December 2025, in the case of Mitchell and another (Joint Liquidators of MBI International & Partners Inc (In Liquidation)) v Sheikh Mohamed Bin Issa Al Jaber (No 2) UKSC 43, the UK Supreme Court ruled that Sheikh Mohamed Al Jaber dishonestly transferred €67.1 million in company shares to his own firms while falsely claiming to still be director; the Supreme Court ordered him to pay this sum to the liquidators despite leaving office decades earlier. The ruling significantly expands director liability: former directors can now be held accountable for breaching fiduciary duties if they exercise control over company assets during liquidation, even years after formally ceasing to hold office. This means directors must be extremely cautious about any involvement with company assets post-departure, as the courts will treat continued control as triggering ongoing fiduciary obligations.

What are the seven directors’ duties under the Companies Act?

The Companies Act 2006 sets out the seven directors’ duties in sections 171 to 177. These duties are owed to the company, not shareholders or creditors directly. The seven duties are as follows:

• Section 171 - Duty to act within powers - Directors must exercise powers only for proper purposes and in accordance with the company’s constitution. This stops directors from using their power to protect their own position or favour certain people over others.
• Section 172 - Duty to promote the success of the company - This requires directors to act in good faith in ways they consider would promote the company’s long-term success for the benefit of members. Directors must consider: long-term consequences, employees, suppliers, community impact, reputation, and fairness between shareholders.
• Section 173 - Duty to exercise independent judgment - Directors cannot surrender decision-making to shareholders or advisors, though they may seek and rely on expert advice. Nominee directors must still assess decisions independently.
• Section 174 – Duty to exercise care, skill and diligence - This duty applies a dual test: objective (what a reasonably diligent person would do) and subjective (the director’s actual knowledge and skill). Courts examine both process and substance, assessing whether directors gathered information, sought advice, and acted responsibly. Documentation matters. Board minutes showing debate, questions, and reasoning provide defence; minutes showing only approval do not.
• Section 175 – Duty to avoid conflicts of interest - Directors must avoid actual and potential conflicts covering property, information, and opportunities. Board authorisation is possible if the company’s articles permit and conflicted directors abstain. The duty continues post-directorship for opportunities learned in office.
• Section 176 – Duty not to accept benefits from third parties - Directors cannot accept benefits because of their role, covering bribes and anything that creates a conflict. Unlike section 175, board authorisation is not available.
• Section 177 and 182 – Duty to declare interests - Directors must declare direct or indirect interests in proposed transactions before they occur (section 177) or in existing transactions as soon as reasonably practicable (section 182). Failure renders transactions voidable and creates criminal liability under section 182.

What are the penalties for non-compliance with directors’ duties?

Removal
If a director’s breach has caused a complete loss of trust and confidence, removal may be the best solution. It is important to bear in mind that the company, not shareholders, can enforce breaches of duty. Shareholders who wish to challenge a director’s conduct can pursue a derivative claim (suing on the company’s behalf) or bring a claim under section 994 of the Companies Act 2006 for unfair prejudice to their interests.

Disqualification Orders
Directors can be banned from acting as a director for a set period. Over 1,000 directors were disqualified in 2024 - 25. The ban length depends on the breach: 2–5 years for carelessness or poor judgment; 6–10 years for serious misconduct; 11–15 years for fraud or intentional wrongdoing. If a disqualified person still acts as a director, they face up to two years in prison.

Personal liability for financial compensation
Directors can be ordered to pay money personally to compensate for losses. This applies under wrongful trading law (Section 214, Insolvency Act 1986), creditor duty breaches, and shareholder derivative claims. Awards often reach millions of pounds, depending on the creditor losses caused or shareholder harm suffered.

Personal Liability Notices (HMRC)
If a company fails to pay employee taxes (PAYE) or National Insurance contributions due to a director’s fraud or carelessness, HMRC can hold the director personally responsible for the full unpaid amount. This applies even after the company has been shut down. ‘Carelessness’ is broadly defined and doesn’t necessarily require dishonesty.

Criminal Prosecution
Acting whilst disqualified carries criminal penalties of up to two years’ imprisonment. Directors can also face criminal charges for fraud or deliberate wrongdoing that leads to disqualification.

How can directors remain compliant with their duties?

It is important to understand that compliance is not a tick-box exercise and nor can it be delegated, rather it requires active governance and documented decision-making. In our experience, there are several ways to ensure that you remain compliant as a company director, however.

When it comes to board Composition and decision-making, we recommend appointing non-executive directors with expertise relevant to your company’s principal risks, ensuring board composition allows for challenging questions and diverse perspectives. Non-executives have identical duties to executives and must exercise equal diligence. Board minutes are also critical. They must record what was decided, why, what information was considered, what expert advice was obtained, and what factors were weighed. Minutes showing only approval offer no defence in litigation and fail to demonstrate reasonable care. Equally important is understanding your company’s business model, principal risks, and financial position sufficiently to discharge oversight responsibilities. When facing decisions beyond your expertise, seek expert advice and document what guidance was obtained and how it influenced your conclusions.

Other measures include:

• Maintaining a conflicts register updated at each board meeting, with proper disclosure and abstention from relevant decisions where conflicts exist
• For proposed transactions with conflicted directors, obtain board approval excluding the interested party and document the decision
• Appointing a cyber lead or ensure a board member takes responsibility for oversight; approve a board-level cyber strategy and receive structured cyber risk reports at least quarterly
• Obtaining adequate directors’ and officers’ liability insurance with appropriate limits and negotiating a deed of indemnity with the company
• Receiving induction covering legal duties, business operations, principal risks, and governance framework; participate in ongoing training on emerging issues
• Establishing relationships with specialist solicitors, insolvency practitioners, and forensic accountants before crises occur
• Complying fully with Companies House filing requirements under the Economic Crime and Corporate Transparency Act

If insolvency becomes probable, decision-making must switch in favour of creditors. Obtain professional insolvency advice immediately, prepare realistic cash flow forecasts, stop incurring unsecured credit, and consider a moratorium, company voluntary arrangement, or administration. Document any and all steps taken to minimise creditor loss, and do not continue trading in the hope that conditions improve without concrete evidence and professional advice supporting that decision.

Final words

Directors in 2026 face unprecedented scrutiny. The courts now examine whether decisions were informed and honest, regulators demand board ownership of cyber and ESG risks, HMRC pursues personal liability vigorously, and shareholders increasingly bring derivative claims. Directors who act with diligence and honesty in the company’s genuine long-term interests will find the law provides workable protections; those who treat directorship as a title rather than a responsibility will face personal, financial, and severe consequences.

Frequently Asked Questions

What is the difference between wrongful trading and creditor duty breach?

Wrongful trading is triggered when insolvency is inevitable. Creditor duty applies earlier, when insolvency is merely probable. There is no statutory defence to creditor duty breach (unlike wrongful trading’s ‘every reasonable step’ defence), and breach can occur before the wrongful trading threshold is reached. Courts now treat creditor duty breach as a separate cause of action.

Are non-executive directors subject to different duties than executive directors?

No, the law imposes identical duties on both. Non-executive directors cannot claim they were less involved. Courts recognise they cannot give continuous attention, but they must show equivalent commitment to the company’s success and be prepared to challenge management decisions.

Can a director be held liable after they have resigned?

Yes, for duties that continue post-directorship. Section 175 (conflicts) and section 176 (benefits from third parties) apply to opportunities learned whilst in office, continuing indefinitely. Recent Supreme Court case law confirms that liability can arise even years after resignation if the director exercises control over company assets during liquidation.

What does ‘reasonable care’ mean in practice?

It means directors must understand the company’s business sufficiently to oversee it, gather information before major decisions, seek expert advice when needed, document the decision-making process, and act responsibly. Courts examine both the process followed and the substance of decisions. Board minutes that record debate, questions, and reasoning demonstrate reasonable care; approval-only minutes do not.

What insurance do directors need?

Directors’ and officers’ liability insurance should cover legal defence costs, compensation payments, investigation costs, and disqualification proceedings. Limits should reflect company size and sector risk. Policies exclude fraud, dishonesty, and deliberate wrongdoing. A deed of indemnity from the company should ensure defence costs are funded during proceedings, not only if the director is successful.