Directors of any company, whether public or private, will be aware that they are subject to duties both under the Companies Act 2006 (CA 2006) and under common law which include:
- to act within their powers
- to promote the success of the company
- to exercise independent judgment
- to exercise reasonable care, skill and diligence
- to avoid conflicts of interest
- not to accept benefits from third parties
- to declare an interest in proposed transactions or arrangements with the company.
Listed company directors have additional considerations to be mindful of. Whatever company directorships held, the Birketts Capital Markets Team can guide you on your role and responsibilities.
Corporate Governance
With the ever increasing public spotlight on how listed companies are run and the transparency with which decisions are made, premium Main Market listed companies are required to adopt the recommendations set out in the UK Corporate Governance Code that specifies, for example, that at least half the board, excluding the chair, should be non-executive directors determined by the board to be independent. AIM listed companies must disclose which recognised corporate governance code they have adopted and how they comply with and have departed from such code. The Quoted Companies Alliance corporate governance code is used by nearly 90% of AIM listed companies.
Statutory duties
Within the general statutory directors’ duties noted above, listed company directors will have specific duties that arise in respect of listed companies.
Reasonable care, skill and diligence
Under s174 CA 2006, directors must exercise the care, skill and diligence which would be exercised by a reasonably diligent person with the general knowledge, skill and experience that (a) may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company; and (b) the director actually has.
Executive directors of a listed company should allocate more time and attention to the affairs of the company than a non-executive director, who will not play a role in the day-to-day running of the business. However, independent non-executive directors should attend board and committee meetings to keep appraised of the latest company information and should investigate and obtain information themselves, rather than placing reliance on statements given by other directors and management.
Conflicts of interest avoidance
Under s175 CA 2006, directors must ensure that they avoid situations where they have, or could have, a direct or indirect interest that conflicts, or could conflict with, the interests of the company. Some directors, particularly independent non-executive directors, may be on the board of several companies where interests may conflict. Directors may be able to absent themselves from certain board meetings or decisions made, but it is advisable to obtain legal advice in these situations. In particular, under the UK Corporate Governance Code, “the board should take action to identify and manage conflicts of interest, including those resulting from significant shareholdings, and ensure that the influence of third parties does not compromise or override independent judgement.”
Directors’ responsibilities for a prospectus or admission document
Directors (including independent non-executives) will be responsible for the contents and accuracy of the admission document or prospectus related to the company’s listing under the AIM Rules and UK Prospectus Regulation. Therefore, liability may arise where any person who has acquired securities and suffered loss as a result of any untrue or misleading statement in the prospectus or supplementary prospectus.
Directors’ responsibilities during trading
Directors of listed companies also face greater regulation in respect of running the business.
Dividends and distributions
Under CA 2006, public companies may only make distributions:
- if the amount of its net assets is not less than the aggregate of its called-up share capital and undistributable reserves; and
- if, and to the extent that, the distribution does not reduce the amount of those assets to less than that aggregate.
Directors who allow payments of unlawful dividends can be liable to the company itself for breach of trust or negligence.
Regulations – UK Market Abuse Regulation (UK MAR)
UK MAR, which applies to financial instruments admitted to trading in the UK, sets out the regulatory regime in relation to insider dealing, unlawful disclosure of inside information and market manipulation. Importantly, criminal insider dealing is an offence under Criminal Justice Act 1993 and criminal market manipulation is an offence under the Financial Services Act 2012.
Directors of listed companies will be privy to considerable information, which could be used to carry out insider dealing, unlawful disclosure of inside information and market manipulation. The FCA can take enforcement action against market abuse and impose significant penalties including unlimited fines, injunction orders and prohibition of firms or approved persons. Criminal sanctions can incur custodial sentences of up to ten years and unlimited fines.
If you require any assistance, please contact Adrian Possener or Dominic Cowie. For further details on how the team can assist, please click the following link – https://www.birketts.co.uk/service/corporate-finance-services-business/capital-markets/
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at July 2023.