Directors Duties & Responsibilities

Directors could face a claim of wrongful trading, which occurs if they continue to trade while knowing that there is no reasonable prospect of avoiding insolvency. Continuing to incur debts when the company cannot pay them can lead to personal liability for directors.

Directors could face a claim of Fraudulent trading, which occurs if they conduct business of the Company with the intent of defraud creditors of the company.

Directors must continue to uphold their fiduciary duties, including (i) Duty to act within powers; (ii) Duty to promote the success of the company; (iii) Duty to exercise independent judgment; (iv) Duty to exercise reasonable care, skill and diligence; (v) Duty to avoid conflicts of interest; (vi) Duty not to accept benefits from third parties; (vii) Duty to declare interest in proposed transaction or arrangement. Failure to do so can result in legal action against the director.

Directors could face a claim of misfeasance, if they have misapplied, retained or become accountable for any money or other property of the company. breached any fiduciary or other duty owed in relation to the company.

If the directors cause the company to enter into transactions with a person at a value that is significantly less than the value of the asset, then not only may the recipient have to return the loss value to the company but the director could face a misfeasance claim for having facilitated it.

If the directors cause the company to enter into a transaction that gives an advantage to a particular creditor in a way which places that creditor in a better position than they would have been if liquidation / administration had not happened, then not only may the recipient have to repay the preference to the company but the directors could face a misfeasance claim for having facilitated it.

Directors are required to maintain accurate financial records and promptly report any signs of financial difficulty. Proper record-keeping is essential to demonstrate that directors have acted responsibly and in accordance with their legal obligations. If they fail to do so the court might draw adverse inferences against the directors in any later proceedings.

Clear and transparent communication with creditors, employees, and other stakeholders is vital. Directors must ensure that stakeholders are informed about the company’s financial status and any actions being taken to address insolvency. This is particularly important with a company is attempting to restructure.