It is almost three years since the enactment of the Companies Act 2006 which brought with it codified provisions setting out statutory duties of directors of companies. In current times, the conduct of directors is increasingly scrutinised – creditors, shareholders, Banks and many other stakeholders have an interest in the conduct of the directors of a company when it all goes wrong!
Whilst set out in the Act, the Act also states that in interpreting its provisions, regard must also be taken on the underlying common law rules and equitable principles from which they are derived.
Regardless of the day to day role performed by individuals holding office as directors, each must comply with the duties imposed upon them by the Act. This includes exercising reasonable care, skill and diligence.
In a recent case, the issue arose of whether passive directors should be held liable for the active misappropriation of assets by one of their fellow directors and in fact their brother. It was decided at first instance that to the extent that the passive directors had not received any personal benefit from their brother’s actings, they should not be held responsible. The underlying premise justifying that decision was that the inactivity of the passive directors had not caused the loss. This decision was appealed – on appeal it was decided that the passive directors had allowed themselves to be dominated by their brother, described as a sophisticated liar and a bully, previously convicted of dishonesty offences in the past. They ought to have known that his business dealings required convincing explanation. If this had been disclosed to the other directors and the company’s auditors, then action would have been taken and losses reduced. As a result of the failure of the passive directors to act, they were found to have breached their fiduciary duties and consequently found liable for substantial sums.
It is therefore essential that if acting as director of a company, you are aware of the duties imposed upon you and the practical implications of that. We are experienced in advising business and individuals on such matters.
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Jeremy Glen