Directors' Liabilities and Responsibilities - The Plot Thickens

• Directors have always owed a duty of good faith (known as a fiduciary duty) to the company and may find themselves personally liable to the company if they breach that duty.
• Directors are exposed to wrongful trading liability if they continue trading a company which is insolvent in circumstances where they knew, or ought reasonably to have known, that the company could not trade out of its difficulties.
• Directors face disqualification from being involved in the formation or management of a company’s business if the courts deem them unfit to do so.
• Directors face personal liability for debts if they start up phoenix companies without the necessary authorisation.

• The law is developing rapidly through the courts regarding breaches of fiduciary duties by directors. Any directors who plan their resignation with a view to exploiting the work they are involved with, on behalf of their own company, run the risk that any profit they make out of that business will be payable to their former employer. The law in this area is becoming incredibly complicated and is highly dependent on the facts of each case.  
• A general theme, however, is emerging that disloyalty is a very important factor. If you want to go your own way, the law expects you to act honourably – to serve your notice, devote all of your time and attention to your employer’s business during your notice period and only start your own business and pitch for work once your former directorship and employment have come to an end. Exploiting confidential information is a definite no-no, but using your general fund of skill, knowledge and expertise in your industry is something which no court will stop you using, unless your contract of employment contained an enforceable restrictive covenant.
• Hot on the heels of the case law, we have the tense new episode of the implementation of the Companies Act 2006 which will be dragged out over the next couple of years. The Act creates a legal requirement that directors act in a way to promote the success of the company for the benefit of its shareholders as a whole, and in doing so have regard to the following: 

1. The likely consequences of any decision in the long term
2. The interests of the company’s employees
3. The need to foster the company’s business relationships with suppliers, customers and others
4. The impact of the company’s operations on the community and the environment
5. The desirability of the company maintaining a reputation for high standards of business conduct
6. The need to act fairly between shareholders of the company

To contact Raworths, telephone 01423 566666 or visit our offices at Eton House, 89 Station Parade, Harrogate HG1 1HF. Or visit our website on www.raworths.co.uk or email mike.sharp@raworths.co.uk.