Director Negligence

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Avoiding Company Directors Negligence 

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Avoiding Company Directors Negligence 

Written by

John A Waller

Director 

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When considering a limited company’s directorship, you must think and understand the roles’ duties and responsibilities and the onerous implications if it all goes wrong.

Ensure as a company director that you;

  1. Act within your powers under the company’s constitution.
  2. Promoting the success of the company.
  3. Independent judgement.
  4. Exercise reasonable care, skill and diligence.
  5. Conflicts of interest and personal benefits.
  6. Keep and maintain accurate company records.
  7. Join the Institute of Directors.

For a further expansion on this topic, please read ‘Directors Duties and Responsibilities‘.

Please do not hesitate to contact HBG Advisory on 0800 612 5448 and we will help you further.

  • Directors Duty of ‘Reasonable Care’
  • The Companies Act 2006 asserts “a company director must exercise reasonable care, skill and diligence” when controlling a limited company in England and Wales. 

Company directors MUST  also ensure the companies’ accounts are maintained and up to date, reflecting the company’s up-to-date financial position at all times.

Directors may not withdraw monies over £10,000 as a loan to themselves without approval, duly minuted from the companies shareholders. Any breach can lead to a director disqualification and having to repay the money and any financial damage the company may incur due to such unauthorised action.

Directors Responsibilities in UK Insolvency

Company Directors are required to ensure a duty to the company and its creditors. Suppose a company is in trouble and faces insolvency. In that case, the directors must consider or act in the interests of creditors and maintain the company’s affairs’ confidentiality.

Appointed directors are required to understand their responsibilities detailed in the Act. They equally apply when solvent and it is no excuse not to be informed about them. 

Wrongful Trading of a Limited Company!

Limited companies facing insolvency, often find the directors in a dilemma: Do they:

The company’s directors remain required to ensure any losses, especially those impacting the companies creditors reduced if not stopped.

Actions required, though, do vary on the situation. Nevertheless, thorough consideration is needed. 

Please contact HBG Advisory for guidance from one of our licensed insolvency practitioner. They will ascertain you and your companies most suitable plan moving forward while supporting you as a director against any potential claims of wrongful trading. IMPORTANT!

Company directors are legally required to ensure they record all decisions taken and the reasons behind them in Board minutes. Applies to any director of a company, which goes into liquidation. It’s important to understand that directors cannot merely escape personal liability by resigning.

The appointed liquidator may apply to a court, to enable the liquidator to enforce the former director to refund the company. 

The former directors, therefore, then need to repay the liquidated company. As they should have known, there was no chance the company could avoid insolvency. Therefore, the director failed to take every step to minimise future losses; thus, worsening the company’s creditors position.

Fraudulent Trading of a Limited Company

Directors intending any form of fraud and therefore worsening creditors position remain personally liable to pay monies back into the company for distribution to the company’s creditors.

However, proving acts of dishonesty requires evidence. If fraudulent trading established? Then the director may be found guilty of a criminal offence and held liable personally.

Recovery of Money for Directorial Misfeasance

A director who has carried out an act of misfeasance such as :

  • Retained company money or property;
  • misapplied it;
  • falsely accounted for it
  • or held out to be guilty of a breach of fiduciary duties.

Then risks action by;

  • an appointed liquidator in voluntary liquidation;
  • the official receiver in a compulsory liquidation;
  • a company creditor;
  • A shareholder of the company. 

Usually brought about due too: 

  • inappropriate payments of dividends,
  • use of monies for an improper or unapproved purpose, 
  • use of funds in violation of the Act 
  • unapproved payments made or loans taken by the directors.

Transactions at an Undervalue

Any transaction at an undervalue, if the company gifts or sells the business’s asset to an individual or entity at a significant value far lower than its actual market value or free of charge.   

An appointed liquidator may have this type of transaction ‘set aside’ provided it happened inside two years of the company’s liquidation.

Avoiding Company Directors Negligence & Preferential transactions

A preference transaction is when a creditor of the company is in a better position (If unsecured) than another creditor before a liquidator appointed. 

Suppose the transaction occurs within six months of the company’s liquidation. In that case, the liquidator can apply to set aside but must have substantial evidence that the director entered into the transaction to produce a preferential effect.

Company Directors Disqualification

Company directors may face disqualification for a five-year term for failing to perform specific duties. They may face a fifteen ban if proven to be unfit to act and manage a limited company.

Examples of being deemed unfit:

  • Committed wrongful or fraudulent trading, 
  • actioned a transaction at undervalue; 
  • created of paid out a preference; 
  • failed to comply with duties keeping and filing company accounts or  
  • breached any responsibility owed to the company.

Being disqualified means that they will not be able to form, promote or manage a UK company during the disqualification period.

Are you worried about any liability for Negligence by you as a Director?

Please call HBG Advisory now for a free, confidential conversation.

HBG Advisory licensed Insolvency Practitioners will help you explore the available options to you.

STOP THE PRESSURE TODAY! GET SUPPORT ON ‘Avoiding Company Directors Negligence’ 

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