by David Fabri
My last two columns in May and June highlighted important overseas developments and court cases relating to company law. Today we briefly examine recent legislative changes in the field of directors’ duties in the United Kingdom and New Zealand. The discussion is also relevant to Malta, where the Companies Act introduced the first-ever statement of directors’ duties in 2003. Our article 136A had preceded by a number of years the UK equivalent provision, which was only added in 2006.
UNITED KINGDOM: Proposed change to articles 172 of the Companies Act;expanding and clarifying the duties of directors
On 4th June 2025, the Company Directors (Duties) Bill – a private members bill – was scheduled for its second reading before the House of Commons. The Bill would amend the directors’ duties under article 172 of the Companies Act 2006. The amendment to this important article shall require directors to balance their duty to promote the success of thecompany with duties to the company’s employees and the environment.
The current article 172 still requires directors “to promote the success of the company”: it could not do otherwise. In pursuing this primary objective, directors are required to “have regard” to a number of listed factors, including the company’s long term interests and reputation, relations with its employees and suppliers, and the community and the environment.
The long title of the new Bill reads: ‘A Bill to amend section 172 of the Companies Act 2006 to require company directors to balance their duty to promote the success of the company with duties in respect of the environment and the company’s employees.’
If the bill becomes law, directors will need to reconcile these new duties with the duties that already exist under the Companies Act 2006. It will be important for company directors in the UK to stay up to date with these proposed changes, should they become part of the law.
NEW ZEALAND: amendment to article 131 of the Companies Act 1993; directors’ duties
The Companies (Directors Duties) Amendment Bill has become law. On 1 August 2023, the NZ Parliament passed the proposed amendment to article 131 which had encounteredsubstantial criticism.
The Act amends the duty of a director to act in good faith and in the best interests of the company set out in section 131 of the Companies Act 1993. A new subsection was added to “clarify” that directors may consider a wide number of factors other than financial gain while making decisions.
The 2023 amendment sought to “to avoid doubt” by listing a non-exhaustive list of other “recognised” environmental, social and governance matters beyond the maximisation of profit that a director may consider. Factors listed include reducing adverse environmental impacts; upholding “high standards of ethical behaviour”, fair and equitable employment practices; and the “interests of the wider community”.
As a result, and following some revisions to the original text, article 131 now expressly stipulates: “To avoid doubt, in considering the best interests of a company or holding company for the purposes of this section, a director may consider matters other than the maximisation of profit (for example, environmental, social, and governance matters)”.
Considerable debate and controversy preceded the passage of the Bill. It had been argued that the law as it stood did not limit directors’ ability to consider these broader factors and that many directors were already considering ESG factors when determining the company’s best interests.
Interestingly, the NZ amendment left the consideration of ESG factors to directors’ discretion, and did not make it mandatory. In the UK, directors are obliged to consider ESG factors when deciding what is most likely to promote the success of the company.
The recent UK decision in the case against the directors of Shell has however confirmed that courts would be reluctant to second-guess or interfere in decision-making by directors.
Conclusion
The duties of company directors and boards and directors remains a popular subject and attract a lot of attention, even in Malta. Expectations keep rising and new statutory legal duties are articulated and added. For these reasons, directors need to be more than ever aware of the surrounding legal landscape, which is complex and fluid, and of the consequential risksof liability.
Maltese professionals and students should take note of these developments abroad and understand our different legal provision. In summary, Maltese article 136A requires directors to “act honestly and in good faith in the best interests of the company” and to “promote the well-being of the company”.
David Fabri LL.D., Ph.D. has been lecturing and writing on company law since 1994. His book on company law was published in 2024 (Mid Sea Books) as part of a trilogy of Studies in Maltese Regulation.
READ THE 26TH EDITION OF THE CORPORATE TIMES:
