On 21 August 2025, the Law Commission (the Commission) published the terms of reference for its review of company directors' duties and liabilities (read the Commission's announcement here). This marks the beginning of the second phase of the Government's broader package of reforms to the Companies Act 1993 (the Act) and related corporate governance legislation. These reforms aim to ensure that the rules governing companies are clear, workable and fit for purpose (for more information on these reforms, see Proposed two-stage reforms to the Companies Act 1993 for the first time in 30 years).
Scope of review
The Commission's review will focus on two main areas:
- Directors' core duties and liabilities under the Act: The Commission will review the main duties imposed on directors under sections 131 to 145. These include duties to act in good faith and in the best interests of the company, to exercise powers for a proper purpose, and to avoid reckless trading. The review will consider how those duties are enforced and the extent of directors' personal liability for breaches.
- Directors' duties and liabilities under other legislation: Company directors are also subject to a range of obligations under other legislation, such as the Health and Safety at Work Act 2015, the Financial Markets Conduct Act 2013, and the Fair Trading Act 1986. These duties have developed gradually over time, resulting in inconsistent approaches being taken to directors' responsibilities. The Commission will explore whether legislation can assign duties and liabilities to directors in a more consistent and principled way.
Reasons for review
This is the first time directors' duties have been comprehensively reviewed since the Act was enacted in 1993, despite significant changes in corporate governance practice since then. Recent court decisions have highlighted potential issues with the Act, particularly when a company is at risk of insolvency. Both the Court of Appeal and Supreme Court in Mainzeal endorsed the need for legislative review, highlighting the tension between directors' business judgement and creditor protection (for more on the Mainzeal decision see Court of Appeal delivers Mainzeal decision: significant implications for insolvent trading and Supreme Court releases Mainzeal judgment).
Process
The Commission is set to publish an Issues Paper on this review in 2026, followed by public consultation. Feedback received at this stage will help to shape recommendations for reform. If the Commission concludes that reforms are necessary it will recommend specific amendments in its Final Report, due to be completed in 2027.
Key takeaways
This review, along with the wider suite of reforms, is expected to bring significant change to directors' responsibilities and the broader corporate governance framework. For directors, the review provides an opportunity to engage with the reforms and ensure that future law is consistent and fit for purpose.
More information on the Commission's review can be found here.
If you want to know more about how these reforms may affect you, get in touch with our team.
This article was co-authored by Rupert Rouch (partner) and Emily Newbury (law clerk).
