165. Under section 172 of the Companies Act 2006, a director is required to act "in a way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole". In doing so, directors are required to "have regard to" a wide range of considerations, including "the likely consequences of any decision in the long term", "the interests of the company's employees", the need to foster the company's business relationships with suppliers, customers and others", and "the desirability of the company maintaining a reputation for high standards of business conduct".479 Board minutes from 15 December 2017, exactly one month before the liquidation, show that Philip Green specifically reminded the board of these duties, and of previous advice on them from legal advisors.480 However, we have seen that, at the very least, there are questions to be asked about the extent to which Carillion's directors had regard to each of these considerations in running the company. Breaches of these duties can form the basis of proceedings brought by the Secretary of State for disqualification as a director under the Disqualification of Directors Act 1986.
166. In Chapter 1, we argued that the business model was based on generating new business rather than pursuing the long-term strategic interests of the company. We also argued that managers had little regard to the need to foster business relationships with suppliers: late payment practices took advantage of smaller suppliers as a matter of practice. This approach was at odds with any notion of maintaining a reputation for high standards of business conduct. We have also argued that the board failed to look after the interests of their employees and former employees by under-funding their pension schemes in favour of cash elsewhere. In evidence to us, Carillion's board members did not give the impression that they were acutely conscious of the wide range of legal duties they had, nor of the prospect of any penalties arising from failure in this regard. It is difficult to conclude that they adequately took into account the interests of employees, their relationships with suppliers and customers, the need for high standards of conduct, or the long-term sustainability of the company as a whole. Any deterrent effects provided by section 172 of the Companies Act 2006 were in this case insufficient to affect the behaviour of directors when the company had a chance of survival. We recommend that the Insolvency Service, as part of its investigation into the conduct of former directors of Carillion, includes careful consideration of potential breaches of duties under the Companies Act as part of their assessment of whether to take action for those breaches or to recommend to the Secretary of State action for disqualification as a director.
Box 5: Section 172 of the Companies Act 2006
| 172 Duty to promote the success of the company. 1. A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to- a) the likely consequences of any decision in the long term, b) the interests of the company's employees, c) the need to foster the company's business relationships with suppliers, customers and others, d) the impact of the company's operations on the community and the environment, e) the desirability of the company maintaining a reputation for high standards of business conduct, and f) the need to act fairly as between members of the company. 2. Where or to the extent that the purposes of the company consist of or include purposes other than the benefit of its members, subsection (1) has effect as if the reference to promoting the success of the company for the benefit of its members were to achieving those purposes. 3. The duty imposed by this section has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors of the company. |
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479 Companies Act 2006, section 172(1)
480 Carillion plc, Minutes of the board of directors, 15 December 2017 (not published)