'B' is for Breaching Directors' Duties (The A-Z of being a director)

Posted: Wednesday, 15 September 2010 @ 19:36

Company directors are subject to so many duties that, if they are not careful and don’t take proper advice, they can easily find themselves in breach of one or more of their duties. But, in SMEs and family-owned companies, the directors and shareholders are usually the same people; so who cares anyway and how would anyone find out about the breaches?

Some breaches are very easy to commit, and many directors don’t even know they are doing anything wrong. For example, there are various requirements (usually found in the Companies Acts, the company’s articles or other Acts of Parliament) to obtain approvals for certain transactions from either the board of directors or the shareholders, or to declare certain interests.

In general, it’s the company itself that can take action and, for SMEs and family-owned businesses, it’s unlikely that the board would decide to take action against one of its own members. However, disputes (even family disputes) do sometimes occur, and more often than you’d like to think.

However, actions for breaches of duties are much more likely to occur if the company becomes insolvent or after it is sold.

If the company goes into liquidation or administration, the liquidator or administrator might well look at all the board minutes and shareholders’ resolutions and, if they find any breaches, they can take action against a director to pay money back to the company. They are also under a duty to report any misconduct to the Department of Business, who can take action to disqualify the director or bring criminal proceedings, if the circumstances warrant it.

If the company is sold and the new owners find that things didn’t go as well as they had hoped, they might well start looking into the company’s documents themselves to see if they can take any action against the previous directors.

So what can you do to protect yourself?

  1. Make sure you know your duties and responsibilities as a director, and take advice if you don’t.
  2. If you think you might have breached some duties, take advice on how to remedy the situation – don’t ignore it.
  3. If you fear insolvency, take advice as soon as possible – don’t leave it until after the company has gone down.
  4. Similarly, make sure things are in order before you sell your company.
  5. And, if a claim is made against you, take advice at the earliest opportunity to put yourself in the best position and, at the very least, seek to limit the damage.

Gary Cousins
Business Solicitor 

For free advice on this topic please call us on 0845 003 5639.

Blog by Gary Pascual
Gary has been providing legal advice to shareholders, directors and business owners for over 25 years. Specialising in dispute resolution Gary is based in Birmingham with clients throughout the UK and overseas. View profile
Call Gary on +44 (0)121 778 3212 or by email
This blog is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation. We offer a free telephone consultation to discuss your particular circumstances.


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