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As we enter 2011, one thing is for sure: company directors have never before faced so many duties, responsibilities and potential personal liability for the companies they control. Based on recent trends, we predict there will be four main areas for directors of SMEs to watch out for in 2011.
Directors’ Pay
The law on how and when a director can be paid is complex and there are strict procedures that must be followed. We have seen a large increase recently in the volume of claims made against directors for them to pay back remuneration and dividends, and this is set to continue.
Most problems are caused by the common practice of a director being paid drawings during the year and then declaring a dividend at the year-end to cover this. There are rules and procedures for overdrawing loan accounts and declaring dividends and, if these are not strictly followed, up to 6 years’ worth of dividends might have to be repaid to the company.
For advice on how to deal with this issue read the full article on the Cousins Business Law website.
Director or shareholder disputes
It is a fact of life that directors and shareholders will sometimes fall out with each other and, during these difficult times, this is happening more frequently. The problem is made far worse however where no one party has overall control of a company and there is no agreement in place setting out how disputes can be resolved or when a director can be removed for misconduct.
Generally speaking, directors can only make decisions regarding themselves if the majority agrees, and a director can only be removed by the majority of shareholders. Needless to say, setting up a company with, say, two directors each with 50% of the shares just sets up a stalemate situation if there is a conflict. This is a recipe for disaster unless you have a specific agreement in place.
For advice on how to deal with this issue read the full article on the Cousins Business Law website.
Liability for costs in litigation
If your company finds itself involved in a court case, you must be particularly careful where you are a small company. The general rule in litigation is that the losing party pays towards the winner’s costs and, if the loser is a company, this payment comes from the company’s coffers.
However, the courts are becoming keener to order company directors of small companies to pay the winning party’s costs personally in certain circumstances. If a director stands to gain from the litigation, controls and funds it (and this is often the case in small companies where the company is effectively the trading vehicle for a director), then the courts may well order them to pay personally.
For advice on how to deal with this issue read the full article on the Cousins Business Law website.
Bribery
The new Bribery Act 2010 comes into force this April. This introduces the following criminal offences:
- Making a bribe.
- Accepting a bribe.
- Bribing a foreign public official in order to win or retain business.
- Failing to prevent bribery by employees, agents or subsidiaries. It is a defence here to show that the company has adequate procedures in place to prevent persons associated with the company from paying bribes.
For advice on how to deal with this issue read the full article on the Cousins Business Law website.
It’s not easy being a director but you can prepare yourself and by taking professional advice at an early stage protect yourself. For advice in relation to directors’ duties and responsibilities contact Gary Cousins at Cousins Business Law here.
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