This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our privacy notice.

Directors’ Liabilities And Protections

Shared from Tax Insider: Directors’ Liabilities And Protections
By Tony Granger, May 2016
The Companies Act 2006 lays down the seven statutory duties of directors (CA 2006, Pt10, Ch 2 (ss 170-181)), which are owed to the company and also to shareholders. Only shareholders are protected against personal loss by limited liability companies – not directors.

Main Director Liabilities

 

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.



The Companies Act 2006 lays down the seven statutory duties of directors (CA 2006, Pt10, Ch 2 (ss 170-181)), which are owed to the company and also to shareholders. Only shareholders are protected against personal loss by limited liability companies – not directors.

Main Director Liabilities

 

Liability

... Shared from Tax Insider: Directors’ Liabilities And Protections