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to be accountable and to be responsible for their actions. Cases on disqualification
have often been used to set the bar for the standard of care for directors. Romer J in
Re City Equitable Fire Insurance Company Ltd 362 stated that directors were not
required to possess any special skills or professional qualifications and could only be
expected to exercise care and skill to a level commensurate with the knowledge and
experience of the individual director. The effect of this decision is that incompetence
is seen as a defence and the higher the skill a person has, the more likely he or she
will be subjected to liability. 363
Nevertheless, the standard of directors‘ skill and care has been raised further by
virtue of section 174(2) of the Companies Act 2006. A director‘s skill and care is to
be judged based on the objective standard expected from a reasonable person
carrying out the same function and the subjective standards based on the particular
individual‘s care and skill. The director‘s care and skill, therefore, will be determined
on the higher standard of the two. 364
362 [1925] 1 Ch 40 at 428-429.
363 Eilis Ferran, Company Law and Corporate Finance (Oxford University Press, London, 1999) at
213-214.
364 Section 174(2) of the UK Companies Act 2006: ―This means the care, skill and diligence that
would be exercised by a reasonably diligent person with—
(a) the general knowledge, skill and experience that may reasonably be expected of a person
carrying out the functions carried out by the director in relation to the company, and
(b) the general knowledge, skill and experience that the director has.‖
398