Directors' Duty & Responsibilities

Directors' Duty

As a director, you have certain responsibilities and duties

Same day advice across the UK for Directors

“You cannot control everything that happens to you; you can only control the way you respond to what happens. In your response is your power.”

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Directors’ Duties & Responsibilities

Directors’ Duties and responsibilities include

  • Ensuring the success of the company;
  • a duty to the company and
  • to manage in a fit and proper manner. Moreover;
  • exercise independent judgement;
  • act within powers;
  • avoid a breach of duty;
  • evade conflicts;
  • avoid directors breach of duties;
  • act in good faith;
  • exercise good business judgement;
  • protect company assets;
  • knowledge skills of the company;
  • all officers understand the duty of directors;
  • act by companies acts;
  • ensure health and safety and statutory duty of the company;
  • must act honestly and exercise reasonable care;
  • understand the consequences of breach.

They have responsibilities also to the company’s business, creditors and employees.

Above all, directors have broad powers and freedom managing a company. However, laws apply to check directors abusing power.

Appointments – Directors

Every limited company must have a company director. At least one then needs to be an actual person.

  • Initial director(s). The shareholders appoint them when forming the company.
  • Future appointments comply with rules set out in the articles of association.
  • Executive and non-executive directors can be appointed.
  • People not appointed should take care not to act as a shadow or ‘de facto’ director.
  • Former directors barred from acting along with bankrupts are not able to hold office.
  • To act as a Director, you advise companies house of your appointment.
  • Who was appointed and when?
  • If anyone has resigned and when.
  • Any details changed and when.

Directors Duty – Exercising directors’ powers.

Directors are required to ensure no limitations exist for performing the role of a director.

  • Exercise care skill and diligence;
  • Directors authority outlined in articles of association;
  • Maintain independent judgement.

Fiduciary responsibilities.

They, therefore, must act in a way which promotes the success of the company and benefits the shareholders. A director must consider several statutory factors, including the consequence of decisions and the interests of shareholders and employees.

  • You must give equal rights and consideration to all shareholders;
  • As a director, do not set your position to benefit yourself at the company’s expense;
  • Legally declare any conflict of interest;
  • The shareholders must approve any deals between the company and you.

Responsibilities under company law.

Directors. They are responsible for ensuring that the company complies with UK company law. However, failure to so may affect you personally.

  • Statutory returns require filing with Companies House, on time;
  • Ensure accounts are filed with Companies House;
  • Provide company details on business stationery and elsewhere;
  • Treat all creditors fairly and not to prefer one over another;
  • Not to benefit yourself over the creditors of the company.

The Companies Act 2006

The Companies Act of 2006. An act of parliament, the source of UK company law. The 2009 Corporation Tax Act updated it.

The critical points of the act are:

  • All aspects of the Companies Act 1985 overhauled and updated;
  • For public and private companies, an additional provision added;
  • Existing common law principles codified along with directors’ duties;
  • EEC Transparency Obligations and takeover directives added;
  • Company law regime for the entire UK became unified;
  • Great Britain & Northern Ireland split in dealing with the company law.

Directors Duty – Potential penalties.

Exercise your responsibilities carefully as a director, penalties for failure to do so can be severe.

  • You may be held personally liable for losses of the company;
  • Directors can be responsible if you act in breach of yours. Responsibilities, collectively and jointly;
  • You may face disqualification, from office when acting as a director;
  • Worst case scenario, you could receive a criminal conviction.

Responsibility for Directors in the UK during a liquidation

    • As a director, you should, therefore, ensure the company ceases to trade, once determined, the company insolvent.
    • Ensure care not to raise further sales invoices, pay staff, deliver finished goods, allow creditors to collect unpaid supplies or request any additional finance for the company. Any director, therefore, doing so, is not in the interests of company creditors and may place you in danger of allegations of wrongful trading, as per Section 214 of the Insolvency Act 1986.
    • Once the ltd company has ceased trading, if the liquidation is voluntary, directors then need to call a meeting of shareholders, so they may vote on ‘winding up’ the company. 75% of shareholders, therefore, must vote to pass the special resolution, after which, the company must then notify Companies House.
    • An advert advertises the companies intentions in the Gazette. Once resolution passed to wind up the company, then an advert in the Gazette placed within 14 days. Therefore notifying any potential creditors as to the companies intentions.
    • As a director, you then have a duty to prepare a statement of affairs. Preparation of the Statement of Affairs is, therefore, perhaps the final duty of the director.
      This document details the company’s current financial situation and includes current asset valuations, a most recent balance sheet, details of employees, creditors balances including all debts owed of debts.

Liquidator Appointed

  • Upon agreement, then a duly authorised licensed insolvency practitioner may appoint. Therefore, appointing a licensed insolvency practitioner (Liquidator) is a legal requirement.
  • You have to cooperate with the Liquidator while they are in office.
  • Directors are then required to ensure the safe delivery of company books and records, both in written and digital format if so held. Refusal to do so may compel the Liquidator to ask the court to force you into doing so and seize records.
  • The Liquidator, have a legal mandate to ensure they investigate the behaviour of directors before the liquidation date.
  • If wrongful trading identified, the directors face a disqualification order, therefore, preventing them serving as a director for up to potentially 15 years.
  • Fraudulent trading may be subject to penalties, fines and a prison sentence.
  • Yours and any other directors authority cease, once a liquidator appointed.
  • You are required to be interviewed by the Liquidator regarding the previous management of the company.

    Convening the deemed consent procedure.

    Now the director (convener) asks the IP to convene the ‘Deemed Consent Procedure’. Allows the consent of creditors over various matters such as the appointment of the Liquidator.
    Unless more than 10% of the creditors oppose, then deemed as consent to move forward.

    Directors’ Duty – Directors Loan Account

    All overdrawn directors’ loan accounts within the company are a debtor of the company when the company is in Insolvency, as with any other debtor, they must repay to the company.

    Often directors’ loans may have been written off in the company’s accounts. The Liquidator though, may write them back for collection. Potentially then, this may cause, therefore, Insolvency Issues for directors personally in the long run.

    Directors’ Duty – Can a Director be Personally Liable for Company Debts?

    Yes, directors liabilities may include if you:

  • dispose of assets of your insolvent company for less than their current market value;
  • have signed a personal guarantee;
  • raise funds to repay creditors via fraudulent means;
  • pay yourself more than what you have declared on PAYE create an overdrawn director’s loan account;
  • continue to trade knowing your business insolvent;
  • sell the assets of an insolvent company for less than their market value;
  • If the above does not apply to you, then, your liability for any of the company debts limited to the money you invested in the business. If your business remains insolvent and enters into an insolvency procedure, then the creditors, therefore, will only be able to recover money owed via the business’s bank accounts and the sale of its assets.

    Directors’ Duty – Pitfalls as a Director.

    • Regularly check the finances of the company;
    • Losses require careful management if the company faces financial difficulties;
    • Maintain minutes of directors’ meetings for future reference;
    • Ensure monthly management accounts are produced, helping track solvency of the company;
    • Keep in mind your duties as a director;
    • Avoid personal guarantees for the company’s debts, where possible;
    • Taking out directors’ and officers’ liability insurance;
    • Ensure verbal advice given equally in writing.

    For help with Directors Redundancy view REDUNDANCY CLAIM

Directors' Duty & Responsibilities
Directors' Duty & Responsibilities
Directors' Duty & Responsibilities
Directors' Duty & Responsibilities
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