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Company Director Advice 

 

A guide to Directors duties and responsibilities and how to avoid personal Liability and wrongful trading actions.

As a director, you must act in a way which you think is most likely to promote the success of the company for the benefit of its shareholders. You need to consider a number of statutory factors, including the long-term consequence of decisions, your firm's reputation and the interests of other stakeholders, such as employees and the community.

 

The company is a separate legal entity from its directors, shareholders and employees. The best interests of the company are not always the same as the best interests of the shareholders.

 

• You must consider the interests of other stakeholders such as creditors and employees.

• You must consider the long-term prospects script"> of the company and its reputation.

 

You must give equal consideration to all shareholders.

 

• Even if you hold most of the shares, or act as the nominee of the major shareholder, you must consider the interests of shareholders as a whole.

• In practice, it is very difficult for a minority shareholder to have a significant say in decisions made by majority shareholders.

 

You must not use your position to make private profits at the company’s expense.

 

• If you are found to have secretly profited from a contract, you might be forced to hand those profits over to the company.

 

You are legally obliged to declare any actual or potential conflict of interest.

 

• For example, if you have interests in another company with which your company is planning to do business.

• The Articles may say you should not vote on such a deal and, if you do, your vote is disregarded.

 

If you, or someone connected with you, such as a relative, personally plan to enter into substantial deals with the company, they must be approved by the shareholders.

 

Your contract of employment must be approved by the shareholders in a general meeting if your term of employment is capable of exceeding two years.

 

Potential penalties

 

Exercise your directors’ responsibilities carefully as the penalties for failing to do so can be formidable.

 

Even in a limited liability company, you could be held personally liable for losses resulting from some acts or omissions.

 

• These include illegal acts and acts beyond your powers or undertaken with insufficient skill and care (see 2).

• You could be liable to contribute for company debts incurred through wrongful or fraudulent trading.

 

Directors can be jointly and severally liable for the consequences if they act collectively in breach of their responsibilities.

 

• Liability could be unlimited, so you could be made bankrupt as a result of decisions of the other directors, even in a limited liability company.

• If you disagree with the decisions being made, have it noted in the minutes, including your reasons for disagreeing.

 

You could be disqualified from acting as a director for some types of conduct.

 

• They include continuing to trade when the company is insolvent, failure to keep proper accounting records, failure to pay tax and failure to co-operate with the official receiver.

• Disqualification lasts from two to 15 years.

 

Some actions could result in criminal convictions

• They include failure to keep proper accounting records, fraudulent trading, health and safety shortcomings and misappropriation of company funds.

 

Wrongful trading

 

You will be guilty of wrongful (or even fraudulent) trading if you allow the business to carry on, and incur debts, when you know there is no reasonable prospect of the company repaying them. If you do, you could be held personally liable for the company's debts if it subsequently becomes insolvent.

 

The fact that the company is making losses does not in itself mean that the company is trading wrongfully.

 

• But if there is no reasonable prospect of it moving into profit, and there are doubts about whether its assets will cover its liabilities or whether it can pay its debts, the company is probably trading wrongfully.

 

The value placed on assets may be critical.

 

• The values as stated in the balance sheet are on a going-concern basis. The value of any assets will be much lower in a forced sale. This is particularly true with intangible assets, such as goodwill.

 

Allow for the expenses of winding up

 

So acting sooner rather than later could prevent:

 

·         Directors attracting personal liability

·         Director issues of wrongful and fraudulent trading

·         trade creditors suffering greater losses than necessary;

·         the bank situation worsening, and possibly resulting in the directors paying monies owed

          under their personal guarantees; and

·         employees not being paid for long periods of time;

 

Jennison understand that the directors will be under substantial pressure in such a situation, we aim to remove the black clouds by providing professional advice in relation to Directors duties which is clear, concise and easy to understand.

 

Call Dianne or Mark on 0800 107 8788 to discuss your duties as a director.

Apply Now - Please call us for a no obligation discussion on 0800 107 8788