Directors Responsibilities/Liabilities
There is no definitive list of directors' responsibilities (although one is promised in forthcoming companies legislation). Instead directors' responsibilities and liabilities have to be pieced together from a variety of statutory and common law sources.
Liability
The general rule is that directors have no liability whatsoever for any debts they incur on the company's behalf, unless there has been some element of misconduct. In general rules there are, of course, exceptions:
| Personal guarantees | Many institutions will often require that directors enter into personal guarantees in order to secure a loan to a company, or for the payment of rent. While such guarantees are in place the director will be personally responsible to the extent specified in the guarantee. |
| Acting whilst disqualified | Any person who acts as a director of a company while the subject of a disqualification order becomes personally liable for any debts incurred by the company during the period in which he was illegally acting as a director. |
| Wrongful trading | This applies where the company has gone into insolvent liquidation and before that time the director knew, or ought to have concluded, that there was no reasonable prospect that the company would avoid such insolvent liquidation. In such circumstances the director may be required to contribute to the assets of the company in the process of liquidation. |
| Fraudulent activity | If a director has concealed or fraudulently removed company property, concealed debts or falsified, concealed, destroyed or made any fraudulent omission from company records, then that director is personally liable for the losses caused by this activity. Even if the director has not been directly involved but knows this activity has been going on, then that director can still be liable. |
| Failure to maintain company records | Under the Companies Act the directors and officers of the company are required to maintain certain up to date records at Companies House. Failure to do so can leave directora liable to a fine. |
Fiduciary duties
Directors hold a position of trust within a company and as a result they owe certain fiduciary duties to the company. These include:
- duty not to make a secret profit
- not to exceed or abuse their powers
- duty of skill and care
If a director is found to be in breach of any fiduciary duties owed to the company then he may be required to compensate the company for any loss it has suffered or to account to the company for any profit he has made.
