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Business > Company Directors

The role of directors often comes under detailed scrutiny in the event of the insolvency of their company. There can be serious legal consequences for them if their duties have been broken.

Investigation of directors

A liquidator or administrator of a company has a legal duty to examine the conduct of the directors of a company prior to insolvency. It is possible that claims may be brought against the directors, former directors or shadow directors for wrongful or even fraudulent trading causing loss to creditors. If assets have been removed, unjustified dividends or pension payments have been taken or loans have not been repaid, a liquidator or administrator will have a duty to recover these. 

Directors’ Duties

A director’s duties to the company are now set out in the Companies Act 2006. These duties are to

  • act in accordance with the company's constitution and to use their powers only for the purposes for which they were conferred
  • promote the success of the company for the benefit of the shareholders
  • exercise independent judgment
  • exercise reasonable care, skill and diligence
  • avoid conflicts of interest (except where they arise out of a proposed transaction, or arrangement, with the company)
  • not accept benefits from third parties which are offered as the result of them being a director
  • declare to the company's other directors any interest they have in a proposed transaction, or arrangement, with the company.

If something has occurred which amounts to a breach of one or more of these duties, action may be taken by the company or sometimes by individual shareholders against the director concerned.  There may also be action to remove the director and to dismiss them as an employee.

Our solicitors can advise directors at all stages of running the company and in the event of an investigation following insolvency. We advise directors individually, boards of directors and shareholders in cases where breach of director’s duty is alleged.

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