Companies Act 2006 Explanatory Notes

Section 173: Duty to exercise independent judgment

333.This duty codifies the current principle of law under which directors must exercise their powers independently, without subordinating their powers to the will of others, whether by delegation or otherwise (unless authorised by or under the constitution to do so).

334.The section provides that directors must not fetter the future exercise of their discretion unless they are acting:

a)

in accordance with an agreement which has been duly entered into by the company; or

b)

in a way authorised by the company’s constitution.

335.The duty does not confer a power on the directors to delegate, nor does it prevent a director from exercising a power to delegate conferred by the company’s constitution provided that its exercise is in accordance with the company’s constitution. Under the draft model articles of association for private companies limited by shares, the directors may delegate their functions in accordance with the articles.

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