#Duty Calls…….

A Director,  the leader of the pack, the boss, king (or queen) of the business…….everything you have dreamed off……but the reality is do you really know your duties and the penalties that occur if you fail to exercise your responsibilites?


You could be held personally liable for losses resulting from illegal acts, acting beyond your powers, or failing to use sufficient skill and care.

You could become personally liable for company debts if you allow the company to trade while it is (or is likely to become) insolvent. If the company has difficulty meeting its financial obligations the directors should seek advice from an insolvency practitioner.


Some types of conduct can lead to disqualification from being a director. You might also be fined or face criminal prosecution — for example, for failing to keep proper accounting records, for fraudulent behaviour, or for serious health and safety shortcomings.


You are not generally responsible for the actions of other directors if you knew nothing about them and took no part. However, a court case in 2009 confirmed that where a director of a company was able to commit fraud because of the inactivity of other directors, those directors were also in breach of their duties to their company. In that case a dominant managing director had taken nearly £60m from his company, misapplying three of the company’s bank accounts, and creating fictitious director’s loans and false bank facility letters. The court said that, by failing to ask questions of the managing director regarding his actions, the other two directors were themselves in breach of their duties to their company. Directors must therefore keep themselves informed about what is going on in the business, and participate in its management, which means they should not sit by and let other directors act without being prepared to challenge them, no matter how dominant those other directors are.


You are also expected to keep yourself informed about what is going on in your company, whether or not it is in an area that is your primary responsibility. It is therefore very dangerous for directors to turn a blind eye to anything going on in their company – particularly in relation to the company’s financial situation. Directors can be held jointly and severally liable if they act in breach of their responsibilities.


You need to understand your role within the company and the law relevant to that area, and to take an active approach to fulfilling your responsibilities. Never sit idly by, assuming that other directors can safely be left to manage the company’s business. For example, you should insist on regular financial reports as to the company’s situation and projections, and apply your mind to them when you receive them.

If you are not happy with the way the company is being run, you may wish to require a board meeting to discuss your concerns. Where you disagree with a decision, it is always a good idea to ensure that this is noted in the minutes of the meeting, together with your reasons. This can be particularly important if the company’s financial situation is poor. If the company subsequently becomes unable to pay its debts, a liquidator or administrator must submit a report on the conduct of each director, which could lead to disqualification as a director and, in some instances, personal liability. You may even wish to keep a private record of events and decisions, and your part in them.

If you are concerned that things are not as they should be, take legal advice personally.

You may also want to consider whether it is worth having directors’ and officers’ liability insurance. Although this cannot protect you from legal action, it can, in certain circumstances, cover the costs of legal advice and damages awarded against you by a court. Cover is often limited, and premiums can be expensive, but it can, in certain circumstances and provided the articles of association give the necessary authority, be paid for by the company. Take advice.


So there it is just like a Disney fairytale, sometimes there is not a happily ever after. Keep on top of your responsibilities as a Director and do not allow yourself to get into a situation where you can be held personally responsible. When in doubt get advice as it is always better to be protected, so #GetProactive and #GetLawSavvy. If you want our help, give us a call.

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