Liability |
Risk |
Protections |
Company fails to file
annual accounts/returns in breach of statutory deadlines. |
Personal fines and
criminal record. |
Directors and Officers
liability insurance (D&O) |
Consecutive
prosecutions for failure to file on time: -
failure
to resign as director; -
cease
acting as a director; or -
director
continuing as employee. |
As above plus director
disqualification for 1-5 years; A further criminal
offence; Loss of income. |
D & O |
Personal guarantees for
business liabilities if a company fails. |
Could lose the home and
personal assets. |
Personal Guarantee
Insurance |
Breach of fiduciary duties
of care to company, shareholders, employees, creditors. |
Breach causing loss –
director personally liable. Company and creditors
can take action for unreasonable loss. |
D & O Company or shareholder
can indemnify in articles or by resolution. |
Statutory derivative
claims where steps are taken by shareholders against directors. |
Dismissal of director Legal proceedings and
costs; Repayment of money or
assets to company; Liable personally for
losses, legal costs and interest. |
D & O Company indemnify |
Unfair prejudice claims
(CA 2006, s 994). |
Winding up of company Loss of job; Cost to company to buy
out shareholder. |
D & O |
Misfeance where
financial information concealed on winding up; theft of company assets;
assets sold below market value; company assets used to benefit third parties
including creditors. |
Losses repaid by
director. |
D & O but not for
intentional illegal acts. |
Director
disqualification – statutory list for misconduct, such as fraud and criminal
deception. |
Disqualified 2-15
years; Ruins career and credit
standing. |
D & O but not for
intentional illegal acts. |
Insolvency liabilities; Receiving assets by
director, spouse, child at less than market value; Director debts paid in
period leading to insolvency; Wrongful trading when
company insolvent; Fraudulent trading; Defrauding creditors; Paying shareholder
dividends whilst company insolvent. |
Claim for recovery of
difference plus misfeance proceedings against director; Claims for value
against director and misfeance proceedings. |
D & O but not for intentional
illegal acts. |
Actions of employees
such as corporate manslaughter (Corporate Manslaughter and Homicide Act 2007)
e.g. where employee using own or company car kills someone. |
Director criminally
liable and corporate and personal fines. |
D & O |
Personal liability
notices for unpaid national insurance contributions; PAYE; other taxes due. |
Claimed from directors,
plus interest and penalties; Financial loss to
director. |
D & O |
Compensation orders
where the company is in administration or liquidation against disqualified
directors to seek compensation – used by HMRC to recover tax losses. |
Personally liable for
losses Further two-year
limitation period for compensation loss proceedings. Civil claim and criminal
proceedings. |
D & O |
Other legislation creating
director liabilities: Employment law (pollution protection of environment),
VAT, Environmental, anti-corruption legislation – Bribery Act 2010; Health
and Safety Work Act 1974, Insolvency Act 1986, Company Director’s
Disqualification Act 1986. |
Directors could be
personally liable; Criminal prosecutions,
fines, imprisonment; Disqualification; Loss of job and income. |
D & O |
Failure to adequately
supervise employees or have effective risk management systems in place. |
Personally liable. |
D & O |
Take cover!
Not only directors, but also ‘shadow directors’ and non-executive directors, can all face penalties for illegal acts and acting beyond their powers, failing to use sufficient skills and care. Directors and Officers liability insurance (D & O) covers the costs of legal advice and damages awarded against them. The insurance covers personal liability for negligent breach of duty or trust that a director may be guilty of in relation to the company.
Practical Tip:
File returns and pay tax on time to avoid personal liability for company tax bills and NICs. Have insurance in place to protect the director acting on company business.