Directors legal responsibilities and rights
It is usually only when things have or are about to go wrong that anybody thinks about the role, legal responsibilities and duties of the director and associated repercussions. At that stage directors often discover there is financial risk and claims against them personally.
If you are a company director seeking clarification on your legal position or what to do about a co-director potentially in breach of duty or creating risk to your company, please do call us to discuss. We always scope matters and provide cost estimates.
Reasons for picking us to work with
- We have a team that can handle all aspects of director related company law and can help avoid risks and provide clarity for both directors and the company.
- Our skills include seeking or defending injunctions, tracing assets, and resolving shareholder disputes.
- Experience in managing investigations into sensitive allegations against directors so that you stay on the right side of the law.
- We’ve dealt with many situations where directors need legal guidance and protection on tricky issues where they are not sure whether they have a conflict of interest, whether the company is insolvent or they may face director disqualification proceedings.
Directors legal risks
Legal risks for company directors come in various and growing ways:
- With vital assets of a company including trade secrets and intellectual property;
- Financial irregularity when the company may be insolvent;
- Claims of breach of duty especially breach of fiduciary duties;
- Claims arising for improper use of directors loans.
Claims against directors relating to confidentiality, trade secrets and IP
The typical way in which legal problems can arise where directors are employees and there is a common law duty of confidentiality as employees. Confidentiality and trade secrets allegations will commonly overlap with a situation where there are concerns a director is not acting in good faith and/or has a conflict of interest.
Who can take action for director breach of duty?
This can be a particular problem for smaller companies, especially those with only 2 directors because the company itself, generally via the directors who can bring claims against a director. So, with a 2 director company this would create an obvious problem.
Shareholders can take legal action against a director in certain circumstances but such claims are never straightforward, The basis for making such a claim is known as a derivative claim.
Who can bring claims also depends on whether action is contemplated under the Companies Act or not. With insolvency, claims against directors can be brought personally by a liquidator, typically for wrongful or fraudulent trading
Insolvency has also become a much bigger risk for directors. Not only is there the risks of personal liability, wrongful trading and disqualification, the Insolvency Service is now actively investigating directors, having stepped up its surveillance and investigations. Administrators are required to make a report.
Company directors as employees
A director is responsible for the day-to-day operations of the company – directors represent the shareholders. But they are often also employees themselves. What is certain is that allegations of director misconduct have to be taken seriously in the modern world for both legal, commercial and reputational reasons. We will give you a steer on issues including :-
- The employment law position of directors and overlap with company law.
- Who is accountable for fraudulent activity?
- What protections are available for whistle blowers and are they different for directors?
- Directors responsibility where there are deficiencies or breaches in health and safety legislation or other major breaches impacting the company such as irregularities in the accounts or customer data breaches or other issues under GDPR.
- What is the standard expected for directors in strictly regulated businesses such as regulation by the FCA?
Company director potential personal liability
Whilst directors are generally well protected against liabilities against the company they represent by the “corporate veil” there are a number of areas where personal liability can arise. We often advise directors about these risks, how to mitigate against them and if claims arise, their best options, both legally and tactically. Areas to watch out for include :-
- Risks of wrongful or fraudulent trading if the business is in financial difficulties;
- Personal guarantees for company borrowings that may have been given where the director is also a significant shareholder;
- Breach of authority – where the director may have exceeded authority when dealing with a 3rd party;
- Possible tax issues where the company has not complied with tax law;
If you are a company director and need specialist, cost effective solicitors to advise on your fiduciary duties or other legal rights, responsibilities or ways to protect yourself we can help. We can also advise if you need advice on the conduct of another director and need to establish what to do – please do get in contact.