Directors’ Duties & Responsibilities

Directors’ Duties & Responsibilities. Written by: John A Waller Consultant Updated: July 3rd, 2024.

When you become a company director, you assume a number of responsibilities. You and the other board members are responsible for planning and defining the company’s strategy.

Here, we outline the most important tasks related to the director role.

What are the duties and responsibilities of a Director?

  • Ensuring the success of the company.
  • A duty to the company.
  • To manage in a fit and proper manner. Moreover,
  • Exercise independent judgement.
  • Act within powers.
  • Avoid a breach of duty.
  • Evade conflicts.
  • Avoid directors’ breach of duties.
  • Act in good faith.
  • Exercise genuine business judgment.
  • Protect company assets.
  • Knowledge skills of the company.
  • All officers understand the duty of directors.
  • Act by companies acts.
  • Ensure the company’s health, safety, and statutory duty.
  • Must act honestly and exercise reasonable care.
  • Understand the consequences of breach.

Directors Responsibilities

Company Directors are responsible for the company’s business creditors and employees.

Above all, directors have broad powers and the freedom to manage a company. However, laws apply to check directors abusing power.

Additionally, directors must ensure the business’s liquidity is maintained. For a further understanding of liquidity, please read the liquidity definition

The UK government maintains webinars to assist new directors.

As a limited company director, you must carry out duties and obligations following the Companies Act 2006. Directors who fail to adhere to obligations risk prosecution and potentially be struck off as directors for many years.

Directors' Duties & Responsibilities.
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Appointments – Directors

Every limited company must have a company director. However, at least one must be an actual person who always observes directors’ duties and responsibilities.

To do so requires an:-

  • Initial director(s). The shareholders appoint them when forming the company.
  • Future appointments comply with rules set out in the articles of association.
  • The company can appoint executive and non-executive directors.
  • People not appointed should not act as a shadow or ‘de facto‘ director.
  • Barred former directors and bankrupts are, therefore, unable to hold office.
  • To act as a director, you must advise companies house of your appointment.
  • Who was appointed, and when?
  • If anyone has resigned and when.
  • Any details changed, and when.

Accepting a directorship in a company is a serious commitment that should not be taken lightly. It has significant legal and fiduciary responsibilities. If you need further clarification regarding Directors’ Duties & Responsibilities. It is highly advised that professional assistance be sought to fully comprehend the implications and obligations of the role.

Directors’ Duties and Responsibilities 

Exercising Directors’ Powers-

Directors’ Duties & Responsibilities have no limitations in their role.

  • Exercise care, skill, and diligence.
  • Directors’ authority is outlined in the articles of association.
  • Maintain independent judgment.
  • Directors Trading while insolvent.

Fiduciary Responsibilities.

Therefore, directors must act to promote the company’s success and benefit shareholders. However, a director must consider several statutory factors, including the consequences of decisions and the interests of shareholders and employees.

As part of the Directors’ Duties & Responsibilities, they:

  • All shareholders must be given equal rights and consideration.
  • As a director, do not set your position to benefit yourself at the company’s expense.
  • Legally declare any conflict of interest.
  • The shareholders must, however, approve any deals between the company and you.

Responsibilities under company law.

Directors are therefore responsible for ensuring they carry out their director’s duties and responsibilities, including the company complies with UK company law. However, failure to do so may affect a company director personally. Legally, company directors must ensure that:-

  • Statutory returns require filing with Companies House on time.
  • Company accounts are filed with Companies House.
  • Provide company details on business stationery and elsewhere.
  • Treat all creditors fairly, and do not prefer one over another.
  • Not to benefit yourself over the creditors of the company.
  • When furlough ends, I can’t pay my staff.

The Companies Act 2006

The Companies Act of 2006 is an act of parliament and the source of UK company law. The 2009 Corporation Tax Act updated it.

The critical points of the act are:

  • All aspects of the Companies Act 1985 were overhauled and updated.
  • For public and private companies, an additional provision was added.
  • Existing common law principles codified along with directors’ duties.
  • EEC Transparency Obligations and takeover directives added.
  • Company law regime for the entire UK became unified.
  • Great Britain & Northern Ireland split in dealing with company law.

Directors’ Potential penalties.

Exercise your Directors’ Duties & Responsibilities carefully as a director. Penalties for failure to do so can, however, be severe.

  • You may personally be liable for the company’s losses.
  • Directors can be responsible if you act in breach of yours. Responsibilities, collectively and jointly.
  • You may face disqualification from office when acting as a director.
  • In the worst-case scenario, you could receive a criminal conviction.

Please read the article. Why do directors delay taking insolvency advice?

Responsibility for Directors in the UK during a liquidation

    • Therefore, as a director, you should ensure the company ceases to trade. Once determined, the company is insolvent.
    • Take care to avoid:
      • raising further sales invoices,
      • paying staff,
      • delivering finished goods,
      • allowing creditors to collect unpaid supplies or
      • request any additional finance from the company.

Therefore, any director is not in the interests of company creditors and may expose you to allegations of wrongful trading, as per Section 214 of the Insolvency Act 1986.

    • Once the Ltd company has ceased trading, if the liquidation is voluntary, directors must call a meeting of shareholders so they can vote on ‘winding up the company’. However, 75% of shareholders must vote to pass the special resolution, after which the company must notify Companies House.
    • An advert advertises the company’s intentions in the Gazette. Once a resolution passed to wind up the company, an advert was placed in the Gazette within 14 days. Therefore, the insolvency practitioner, on behalf of the directors, should notify creditors of the company’s intentions.
    • As a director, you must prepare a statement of affairs. This is the director’s final duty.
      This document details the company’s current financial situation and includes current asset valuations, a most recent balance sheet, details of employees, and creditors’ balances, including all debts owed of debts.

Liquidator Appointed

  • Commencing the process of liquidation is simple.
  • Upon agreement, a duly authorised licensed insolvency practitioner may be appointed. Therefore, appointing a licensed insolvency practitioner as liquidator remains a legal requirement.
  • You have to cooperate with the Liquidator while they are in office.
  • Directors are then required to ensure the safe delivery of company books and records, both in written and digital format, if so held. Refusal to do so may compel the Liquidator to ask the court to force you into doing so and seize records.
  • The Liquidator has a legal mandate to investigate directors’ behaviour and how they carried out their Directors’ Duties & Responsibilities before the liquidation date. (For further information, please read ‘Duties of an Insolvency Practitioner‘)
  • If wrongful trading is identified, the directors face a disqualification order, preventing them from serving as directors for up to potentially 15 years.
  • Fraudulent trading may be subject to penalties, fines and a prison sentence.
  • Yours and any other director’s authority cease once a liquidator is appointed.

The liquidator must interview you regarding the company’s previous management.

Now, the director (convener) asks the IP to convene the ‘Deemed Consent Procedure’, which allows creditors to consent to various matters, including the appointment of the Liquidator.
Unless more than 10% of the creditors oppose, then deemed consent to move forward.

  • Directors’ Duty – Directors Loan Account

All overdrawn directors’ loan accounts within the company are debtors of the company when the company is in insolvency. As with any other debtor, they must repay the company.

Often directors’ loans may have been written off in the company’s accounts. The liquidator may however write them back for collection. Potentially, therefore, this may cause insolvency issues for directors personally however ,in the long run.

Directors’ Duty – Can a Director be Personally Liable for Company Debts?

Yes, directors’ liabilities may include if you:

  • Dispose of assets of your insolvent company for less than their current market value.
  • Have signed a personal guarantee.
  • Raise funds to repay creditors via fraudulent means.
  • Pay yourself more than what you have declared on PAYE, and create an overdrawn director’s loan account.
  • Continue to trade, knowing your business is insolvent.
  • Sell the assets of an insolvent company for less than their market value.
  • If the above does not apply to you, your liability for any company’s debts is limited to the money you invested in the business. If your business remains insolvent and enters into an insolvency procedure, the creditors will only recover money owed via the business’s bank accounts and the sale of its assets.

For further reading on director’s liability, please view the meaning of limited liability.

Directors’ Duties & Responsibilities – Pitfalls as a Director.

  • Regularly check the finances of the company.
  • Losses require careful management if the company faces financial difficulties.
  • Maintain minutes of directors’ meetings for future reference.
  • Ensure monthly management accounts are produced, helping track the company’s solvency.
  • Keep in mind your duties as a director.
  • Avoid personal guarantees for the company’s debts, where possible.
  • Taking out directors’ and officers’ liability insurance.
  • Ensure verbal advice is given equally in writing.
  • Avoid a compulsory liquidation and winding-up petition.
  • Understand retention of title clauses with suppliers.

The Institute of Directors.

About the Institute of Directors. Joining helps individuals understand Directors’ Duties & Responsibilities.

The IoD was founded in 1903 and awarded a Royal Charter in 1906 to support, represent, and set standards for business leaders nationwide in the UK. Its objective is to ensure that the views of business leaders are heard by the UK government when reviewing policy or legislation or exploring the opinions of the UK business community.

The IoD comprises over 30,000 entrepreneurs, CEOs, directors and decision-makers from every sector and region in the UK.

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