The Law Commission has announced its review of directors’ duties and liabilities.
This is the second limb of the package of measures announced by the previous Commerce Minister with the aim of modernising the Companies Act 1993 and related corporate governance laws.
Terms of reference
The terms of reference published by the Law Commission has two limbs:
| Review of the core duties of directors under the Companies Act, including liability for breach of those duties and issues of enforcement. If the Commission concludes reform is necessary, it will recommend specific amendments in its final report to the Government, scheduled for 2027. | These provisions have never been comprehensively reviewed. Recently, the courts have highlighted issues with directors’ duties at the time a company is at risk of insolvency. The Law Commission will review them, with a particular focus on the duties under sections 131 to 145. The Commission will also consider the associated liabilities and issues of enforcement. The review will not extend to all provisions of the Companies Act relevant to directors’ obligations or their enforcement (e.g. the large number of “administrative” obligations). |
| Second, the Commission is considering the wide range of provisions in other legislation that impose personal liability on directors. The Commission will explore whether, and if so how, future legislation can assign duties and liabilities on directors in a more consistent and principled manner. | A broad range of legislation imposes duties on company directors – with exposure to potential liability. The development of this legislation has occurred piecemeal. The duties are framed in a variety of ways and the nature of the liabilities differs. The Law Commission will consider whether, and if so how, directors’ statutory duties and liabilities might be approached in a more consistent and principled manner in future legislative reform – and ask when and how it is appropriate for legislation to place these types of obligation on directors. |
Why is the Law Commission reviewing directors’ duties and liabilities?
The Law Commission announcement says that a review is timely in light of recent court decisions highlighting concerns with some duties when a company is at risk of insolvency. This particularly in light of the recent Supreme Court decisions in Mainzeal (2023) and Debut Homes (2020).
Timeframe
The Law Commission announcement says the Commission will publish an Issues Paper in 2026, on which it will hold public consultation. The feedback received from consultation will help shape recommendations for reform. And the timeline for submitting a report to the Commission’s responsible Minister is in 2027.
Geof Shirtcliffe, the Commissioner noted that the review provides an important opportunity to address the concerns highlighted by the courts and other concerns about the current law.
For the director community, fitness for purpose is likely to include an assessment of whether the statutory framework has kept pace with changes in corporate governance practice over the last 3+ decades.
For more information, please do not hesitate to contact me.