All too often people take on a director role without fully understanding their responsibilities and legal obligations. Many have no idea of the possible consequences that can happen if those obligations are not complied with, although when you mention that one possible consequence (albeit a rare one) is imprisonment they usually start to want to know more. So, earlier this week, we ran a seminar on Directors Duties, essentially exploring what those duties are and why directors should care about them. By way of an overview, we explored:
- The fact that the duties apply to all types of director, whether they are formally appointed board directors or de facto and shadow directors;
- The various duties upon a director, focusing on the 7 duties codified by the Companies Act 2006 which are:
- To act within your powers;
- To promote the success of the company for the benefit of the members as a whole;
- To exercise independent judgement;
- To exercise reasonable care, skill and diligence;
- To avoid conflicts of interest;
- Not to accept benefits from third parties; and
- To declare an interest in a proposed transaction or arrangement with the company;
- The possible liabilities of a director where a duty has been breached;
- The differences in an insolvency situation as the interests of the creditors become the priority;
- How to protect yourself as a director by way of indemnities from the company and/or insurance cover; and
- The circumstances in which a director might be disqualified from holding future directorships for up to 15 years.
Any directors reading this who are not familiar with the above might want to seek some formal training or professional advice to ensure that they are not unduly exposing themselves to risk.