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Directors' Responsibilities

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.”

DIRECTORS RESPONSIBILITIES

Company directors have a responsibility to their company and to manage it in a fit and proper manner. Their job is to promote the company for the benefit of the shareholders. They also have responsibilities to the company’s creditors and employees.

Directors often have broad powers and freedom when it comes to managing a company. However, some laws stop directors abusing their powers. These laws can often come with severe consequences if broken.

Appointments – Directors

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

  • Initial director(s). The shareholders appoint them when forming the company.
  • Future appointments must follow the rules set out in the articles of association.
  • executive and shadow or ‘de facto’ director.
  • Not everyone can be a director. Former directors who have bee barred from acting along with bankrupts are not unable to hold office.
  • To act as a Director, you must advise companies house of your appointment.
  • Who was appointed and when
  • Who has resigned and when
  • Whose details have changed and when

Exercising directors’ powers.

Directors must make sure that there are no limitations that would stop them from doing certain things within a company.

  • Directors authority is in the articles of association.
  • Exercise care, skill and diligence.
  • Maintain independent judgement.

Fiduciary responsibilities.

A Director must act in a way which promotes the success of the company and benefits the shareholders. When serving as a director, you 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 you must declare any actual or potential 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. Failure to so may affect you personally.

  • Statutory returns, to be filed with Companies House, on time.
  • File accounts 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 creditors of the company.

The Companies Act 2006

The Companies Act 2006 is an act of parliament that is the source of UK company law. Parts of the act have been replaced by the 2009 Corporation Tax Act.
The provisions of the act were implemented gradually. Changes have been made and will be ongoing.

The key points of the act are:

  • All aspects of the Companies Act 1985 overhauled and updated.
  • For public and private companies extra 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 unified.
  • Great Britain & Northern Ireland split in dealing with company law.
  • 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 be disqualified, 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 ensure the company ceases to trade, once it is determined, the company is insolvent.
  • As directors, you must take care not to raise further sales invoices, pay staff, deliver any finished goods, allow creditors to collect unpaid for supplies or request any further finance for the company. Any director doing that is not in the obvious interests of company creditors may place you in danger of allegations of wrongful trading, as per Section 214 of the Insolvency Act 1986.
    Insolvency practitioners holding the office of the liquidator, have a legal mandate to ensure they investigate the behaviour of directors during the period up to the liquidation date.
  • If wrongful trading is identified, the directors face a disqualification order, 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 is appointed.
  • Once the ltd company has ceased trading, if the liquidation is voluntary, directors are required to call a meeting of shareholders. This is so they may vote on ‘winding up’ the company. 75% of shareholders must vote to pass the special resolution, after which the company must notify Companies House.
  • An advert is then placed in the Gazette. Once the resolution is passed to wind up the company. Then it is advertised in the Gazette within 14 days. This notifies any potential creditors as to the companies intentions.
  • Upon agreement, a duly authorised licensed insolvency practitioner is appointed. Appointing a licensed insolvency practitioner (liquidator) is a legal requirement.
  • As a director, you then have a duty to prepare a statement of affairs.Preparation of the Statement of Affairs is perhaps one 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.
  • As a director, you have a duty to cooperate with the liquidator whilst they are in office
    Directors are required by law when insolvent, to ensure the safe delivery of company books and records both in written and digital format if so held. Further, they should ensure all information is forwarded for that the liquidator requires for the purposes of his/her investigation.
    Refusal to do so may compel the liquidator to ask the court to force you into doing so and seize records.
  • You are required to be interviewed by the liquidator in respect to the affairs of the company and how it was managed.
  • Convening the deemed consent procedure. Now the director (convener) asks the IP to convene the ‘Deemed Consent Procedure’. This allows the consent of creditors over various matters such as the appointment of the Liquidator.
    Unless more than 10% of the creditors oppose, this is deemed as consent to move forward.
  • Directors’ Loan Accounts
    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 will be required to 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. Often this may cause Insolvency Issues for directors personally.

    CAN A DIRECTOR BE PERSONALLY LIABLE FOR COMPANY DEBT?

    Yes if:

  • You dispose of assets of your insolvent company for less than their current market value
  • You have signed a personal guarantee
  • You raise funds to repay creditors via fraudulent means
  • You pay yourself more than what you have declared on PAYE create an overdrawn director’s loan account
  • You continue to trade knowing your business is insolvent
  • You 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 is limited to the money you personally invested in the business. If your business is insolvent and enters into an insolvency procedure the creditors will only be able to recover money owed via the business’s bank accounts and the sale of its assets.

    PITFALLS AS A DIRECTOR

    • Regularly monitor the finances of the company.
    • Losses should carefully be monitored if the company faces financial difficulties ensuring minimum exposure for creditors.
    • Ensure minutes of directors’ meetings are maintained for future reference.
    • Ensure monthly accurate management accounts are maintained, helping track solvency of the company.
    • Keep in mind your responsibilities and duties as a director.
    • Avoid giving personal guarantees for the company’s debts, where possible.
    • Consider taking out directors’ and officers’ liability insurance to protect yourself.
    • Ensure all advice given is in writing.

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