10 things you shouldn’t do to avoid falling foul of directors’ duties

Here’s how to avoid the pitfalls:

1. Don’t assume that other directors have compliance “covered”

Particular directors may be tasked with ensuring the company’s compliance, but penalties may still be imposed on other directors if statutory requirements are not met. Make sure it is clear what needs to be done and who is doing it.

2. Don’t assume that not officially being a “director” means the duties won’t apply

Various duties apply to individuals effectively acting as directors without being formally appointed (“de facto directors”) and to individuals in accordance with whose instructions the board are accustomed to act (“shadow directors”).

3. Don’t hold board meetings without keeping accurate records

Accurate board minutes provide a record of decisions made as well as the fact that such decisions were discussed and carefully considered.

4. Don’t neglect key filing requirements

Ensure you are aware of filing deadlines for key documentation such as the annual accounts and annual returns, and note that other matters, e.g. certain shareholders’ resolutions, allotments of shares, the appointment of new directors, etc. need to be notified to Companies House within specified periods.

5. Don’t forget to check the articles of association

The articles are effectively another layer of rules imposed upon directors and the company and may set out, for example, specific requirements for the calling of a shareholders’ meeting or provisions relating to directors’ meetings and remuneration.

6. Don’t assume that declaring an interest means that you are not conflicted

There is a difference between the duty to declare an interest in a transaction, and the duty to avoid a conflict of interest. Simply noting your interest in board meeting minutes does not necessarily mean you have avoided any existing or potential conflict.

7. Don’t accept a benefit from a third party without authorisation

A benefit gained as a director might include, for example, corporate hospitality, and there is no minimum threshold. The rule does not apply where there is no reasonable possibility of a conflict of interest, but what this means remains unclear. Any authorisation must be given by the company’s shareholders. Other transactions involving directors, such as directors’ loans and transfers of non-cash assets to or from directors or persons connected with directors, may also require shareholder approval.

8. Don’t neglect obligations other than statutory company law duties

Directors may be pursued personally if their company breaches, for example, certain environmental and health and safety laws.

9. Don’t forget that insolvency (or the threat of it) means another regime applies

As a company nears insolvency, there arises the possibility of personal liability for, amongst other things, wrongful trading. In the unfortunate event that your company does become insolvent, you will continue to owe duties as a director, but primarily to the company’s creditors rather than its shareholders. This situation requires specialist advice.

10. Don’t ignore warning signs

If you have concerns about any company decisions, or the content of any documents such as accounts or board papers, make your views known. It is your duty to act with reasonable skill, care and diligence.

Amy Collins is a partner and Linda Whittle is a solicitor at Fladgate LLP.

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