A director is responsible not only for his own actions, but also those of other directors, management and employees. Directors could face both civil and criminal liabilities. ‘Directors’ could include all directors, shadow directors (including a part time finance director or a liquidator), company officers, senior employees and managers.
Statutory Duties
The Companies Act 2006 (Section 172(1)( a-f)) introduces seven new statutory duties for directors in place of the common law:
1. Act within your powers;
2. Promote the success of the company;
3. Exercise independent judgment;
4. Exercise reasonable care, skill and diligence;
5. Avoid conflicts of interest;
6. Don’t accept benefits from third parties; and
7. Declare interest in proposed transaction or arrangement with the company.
The Companies Act 2006 includes the first ever statement in statute of directors’ duties in respect of the environmental and social impacts of their companies’ business; a new statutory right for shareholders to sue directors (derivative action) and recover on its behalf loss it has suffered as a result of the directors’ negligence, default, breach of duty or breach of trust.
Directors are at risk of prosecution under various acts, including Environmental Protection Act 1990, Insolvency Act 1986, Health and Safety at Work etc Act 1974, Bribery Act 2009, and other statutes on data protection, customs and excise, employment, money laundering, EU legislation, and others.
Instances include corporate manslaughter where an employee driver kills another, or a trench wall collapses on site killing an employee, and HSE and the murder squad investigates. The consequences for the director and the company could be catastrophic, with an impact on sales and prosecution, fines and imprisonment.
Who Can Sue
Employees Shareholders
Creditors Suppliers
Other businesses Customers
HMRC Regulators
Prosecutors Of Government Agencies
Who Can Be Sued
Directors, shadow directors, company officers, senior management, management, connected persons such as family members (including spouse or civil partner, anyone with whom the director lives as a partner in ‘an enduring family relationship’, children and stepchildren (both the director’s own and his partner’s) and the director’s parents).
Some Myths
• A director cannot delegate away his powers – no, he remains vicariously liable for the actions of others
• I am not a director, so not responsible – you can be deemed to be
• Directors have limited liability – shareholders do, but not directors
• The company will pay the damages, fines and defense costs – the director could be personally liable and his unlimited assets are on the line, and he could go to prison.
In 2009/2010 there were 25,000 commercial fire incidents reported in England and Wales.
There were 236,000 employee tribunals and employees suing companies and directors over the same period. This type of risk is far greater to a company.
Practical Tip
Without delay obtain D & O (Directors and Officers) liability cover to cover the costs of defending a claim, protecting company profits and assets, loss of personal assets, preventing business interruption and save management time.
Tony Granger
