Chapter 7 Directors' Duties - alastairhudson.com

The inter-action of the statutory scheme with the case law
It is very important to understand the unusual inter-action between the statute and the case
law. The statutory scheme is best understood as a statement of a director‟s general obligations
qua director, and as such as an attempt to reduce the case law principles to a short,
comprehensible code. To this effect, s.170(3) of the CA 2006 provides as follows:
“The general duties are based on certain common law rules and equitable principles as
they apply in relation to directors and have effect in place of those rules and principles
as regards the duties owed to a company by a director.”
Therefore, the statutory scheme can be interpreted in accordance with the pre-existing case
law in that the general duties are based on those common law and equitable principles.
Significantly, the statutory principles have effect “in place of” the case law. Therefore we
might assume that, in the ordinary course of events, the statute has displaced all of the preexisting
case law, except to the extent that the pre-existing case law might be referred to in
the event that the statutory principles are unclear or their genesis is obscure. However,
s.170(4) of the CA 2006 provides as follows:
“The general duties shall be interpreted and applied in the same way as common law
rules or equitable principles, and regard shall be had to the corresponding common
law rules and equitable principles in interpreting and applying the general duties.”
Therefore, while the statutory rules act “in place of” the pre-existing case law, the statutory
rules are nevertheless to be interpreted as though they were themselves case law principles.
That means that the high-level principles set out on ss.171 through 177 of the CA 2006 are
capable of being developed by subsequent case law. What is unclear is how we can
understand these principles as being a sort of case law principle given that presumably the
courts are not permitted to overrule nor materially alter the sense of the statutory rules.
Furthermore, as s.170(4) provides, “regard shall be had” to the case law principles in the
development of the statutory principles. In effect, then, it is suggested that the effect of this
statutory scheme is that the previous case law principles have been distilled down to the
statutory code (and therefore that any earlier cases which conflict with this statutory scheme
are deemed to be of no further effect) but that in the future the courts may develop those
principles as with any case law principle which is (presumably) binding upon it.
The purpose and effect of the statutory scheme
The purpose behind creating a statutory code for directors‟ duties for the first time was to
enable non-lawyers to understand their duties as directors more easily. The Companies Act
2006, as with its predecessor legislation, is drafted in as accessible a way as possible.
Therefore, having all of a directors‟ general duties reduced from reams of complex case law
down to a brief code of statutory principles means that all directors should be able to
understand what their obligations are. The continued importance of the old case law and the
natural development of the case law principles means that those general principles are still
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