Directors’ Duties and Responsibilities

  1. Before becoming a director

When considering taking up a directorship of a company, an individual should do all necessary due diligence before agreeing to the position.

All prospective directors should review:

  • the company’s memorandum and articles of association;
  • details of all the directors of the company;
  • details of the company’s shareholders;
  • details of any parent company or associated company;
  • minutes of recent board meetings;
  • insurance policies; and
  • financial reports. 

In order to ensure you are able to run the company to the best of your abilities and that you understand the nature of your duties as a director, you should also make sure you are aware of:

  • the company’s products and/or services;
  • the company’s suppliers and/or customers;
  • the company’s professional advisers;
  • recent developments in the company;
  • health and safety, environmental, employment procedures and documentation.
  • Legal Obligations

In addition to understanding the responsibilities of a director for a company and how the business is run, any potential directors should also be aware of the legal duties and obligations as summarised below.   

  1. Director’s Statutory Duties
  1. to act within their powers;
  2. to promote the success of the company;
  3. to exercise independent judgement;
  4. to exercise reasonable care, skill and diligence;
  5. to avoid conflicts of interest;
  6. not to accept benefits from third parties; and
  7. to declare interest in a proposed transaction or arrangement.
  1. Confidentiality

A director has a duty of confidentiality to the company of which he is a director. 

Key issues will include:

  1. What information can be disclosed to shareholders;
  2. What information can be disclosed to the public:
  3. To avoid conflicts of interest;
  4. Anti-Bribery & Corruption.

There are strict anti-bribery guidelines in place in the UK now which heavily regulate bribery.

  1. Insolvency

Where a company is or may be in financial difficulties, a director may have additional obligations under insolvency legislation.

Wrongful Trading

A director has a duty to take every step possible to minimise the losses to the company’s creditors. If, after the company has gone into insolvent liquidation it appears to the courts that a director has failed to comply with this duty, the court can order the director to make such contribution to the company’s assets as it thinks proper.

Fraudulent Trading

The court, on application of a liquidator, may declare that any persons who are knowingly parties to carrying on the business with the intent to defraud the company’s creditors are to be liable to make such contributions to the company’s assets as the court thinks fit. Knowledge extends to deliberately shutting one’s eyes to the obvious, as well as actively participating in the fraudulent trading. 

Disqualification

A court will make a Disqualification Order against a director of an insolvent company if the court is satisfied that the person is unfit to be concerned in the management of the company. 

  1. Other Statutory Duties

There are other statutory imposed on directors: –

  1. Maintain statutory registers and records;
  2. Make directors’ service contracts open to inspection;
  3. Loans to directors; and
  4. Accounts and financial duties including obligations on insolvency and treating creditors fairly.
  • Liability of Directors

Directors must have sufficient knowledge of the day to day running of the business and the affairs of the company. A director will be personally liable to the Company for not complying with their statutory duties.

Shareholders will normally only have a cause of action against the Company and not you as director EXCEPT under a Derivative Claim:

DERIVATIVE CLAIM

At the courts discretion, a shareholder in their own name, on behalf of the company, can bring a derivative claim against a director or third party for an actual or proposed act or omission involving:

  • Negligence;
  • Default;
  • Breach of Duty; and/or
  • Breach of Trust.

However, the bar is to bring a derivative claim is set very high and, in practice, its difficult for a shareholder to successfully bring such a claim against a director.

For help and advice on becoming a director or to request an in depth Guide to Directors’ Duties and Responsibilities, please speak to our Corporate and Commercial team at on 0161 926 9969 or email corporate@mlplaw.co.uk.