The current financial pressures on nursery providers means that many are having to make increasingly difficult decisions concerning management and allocation of resources.
For company directors, this makes it all the more important to bear in mind the various legal duties they have when making decisions. These are:
- Not to do anything which exceeds the powers they have under the law and the company's constitution (and not to exercise those powers for improper purposes).
- To promote the success of the company. In doing so, directors must have regard to various matters.
- To exercise reasonable care and skill.
- To declare any interest in a proposed transaction or arrangement with the company, and not to participate in the decision if the company's constitution prohibits this.
- To avoid all other types of conflict of interest (unless authorised to participate in the decision in one of various ways permitted by law).
- Not to accept any benefit from a third party which is conferred because of being a director.
- To keep themselves sufficiently informed of the company's affairs.
- Not to disclose confidential information concerning the company to third parties.
In general, the above duties are owed to the company, and only the company will be able to take action against a director in breach.
Directors can limit the risk of challenge to their decisions by ensuring that the reasons for their decisions are properly recorded in board minutes. In particular, these should record the reasons why the decision will promote the success of the company. Any conflicts of interest should also be appropriately recorded and dealt with.
Directors should also remember that a wide number of duties also apply in other specific scenarios such as under health, safety and environmental legislation, where there is a risk of insolvency and (for executive directors) under their employment contracts.
