Directors Duties
24th May 2010
Company directors can sometimes feel pulled in all directions.
As well as managing the day to day business, there are all the laws and regulations they have to comply with, including duties they owe to the company and obligations to file accounts and other information with Companies House.
Directors have to act in a way they think is most likely to promote the company’s success for its shareholders as a whole but, in taking decisions, they also have to think about the effect on employees, suppliers, customers, the environment and fairness between shareholders.
So what can directors do to protect themselves against possible personal liability?
A recommended first step is to be clear on their duties and responsibilities to the company and to Companies House.
Non-compliance with Companies House requirements has become more of an issue in the last couple of years, with Companies House becoming more active in chasing and fining companies for late filing, something which can in some situations lead to director disqualification.
Directors should make sure they have a formal decision-making process in the company, holding regular board meetings and keeping minutes, which should be supported by relevant background papers.
This can sometimes be overlooked in the rush of the day-to-day, but is of particular relevance if the company runs into difficulties; failure to keep appropriate books and records is one of the most common reasons for the Department of Business, Innovation & Skills seeking director disqualification in such circumstances.
Board meetings should not be box-ticking exercises and directors should not be afraid of asking searching questions, as each director has a duty to exercise independent judgement when a decision is taken.
This requires all directors to know enough about the company’s affairs that they understand the consequences of their decisions.
Directors should also continuously monitor the company’s financial situation and minimise risks to creditors – financial monitoring is not just for the company’s accountants.
Financial positions can change overnight, so it is worth setting up a regular information flow and having a culture of all decision-makers being up to speed on the company’s position.
Wherever necessary, professional advice should be taken, especially if the company is becoming insolvent.
* David Lucas, is a Partner in the Business and Company Law team at BHP Law and can be contacted on 01642 672770. The team is hosting a free, one-hour seminar on the topic of directors’ duties on Tuesday, June 29 at BHP Law’s office at Preston Farm, Stockton, at 8.30am. To register, call Rebecca Aiken-Saville on 0191-332 4578 or email RebeccaA@bhplaw.co.uk.
The company law team’s next column on June 22 will focus on shareholders’ protection.
Author: David Lucas, Partner (DavidL@bhplaw.co.uk)
Related Articles
| Support from a Winning Team | 25th Jan 2012 |
|---|---|
| Langdale Hall | 5th Dec 2011 |
| Preston Farm Anniversary | 28th Nov 2011 |
| Education Centre for Children with Down’s Syndrome Trustee | 22nd Nov 2011 |
| The Lawyer Top 200 | 15th Nov 2011 |
| New Associates Appointment | 24th Oct 2011 |
| Need for Workplace Fund | 17th Oct 2011 |
| Government to Ban Referral Fees | 17th Oct 2011 |
| Legal 500 - BHP Law in focus | 30th Sep 2011 |
| BHP Law Awards First County Durham Community Foundation Grant | 8th Aug 2011 |