Legal claims against company directors
Directors carry the risk of personal claims. The risk of claims against directors stem from many different avenues such as employees, creditors, shareholders and increasingly the Insolvency Service. We review the risk of claims against directors and represent directors at investigations, in civil claims, at creditors meetings and before the Insolvency Service.
Other potential legal problems and risks for directors may arise in terms of disputes with shareholders or difficult aspects of director fiduciary duties and in newer areas such as failing to prevent bribery.
Please do call us to discuss your position. We do provide initial scopes and fee estimates.
Years of working with employers, directors and companies gives us the experience to respond quickly.
- There is a team that can handle all aspects from dealing with shareholders, creditors, advising on director duties through to avoiding litigation. The expertise covers tracing assets and freezing injunctions along with disclosure of information.
- We quickly assess and advise on whether a director is acting outside of his or her powers or is in breach of fiduciary duties.
- Skilled in advising directors who believe there is a campaign to oust them.
To help you navigate we have summarised:
What types of legal claims are made against directors?
The main legal risks for directors include:
Generally speaking under most company’s articles of association the directors are given day to day control and ,management of the company. This can be limited and in smaller companies where the directors are typically also the main shareholders, powers may be limited in shareholder agreement.
Given that most directors have significant power and control what are the company law and other limitations on those powers? These include :
- Limits on powers under the Companies Act 2006 such as changing names, changing the company’s articles or winding up the company;
- Loans being made to directors;
- Issuing new shares in the company;
- Company directors awarding themselves fixed term contracts of over 2 years;
- Breach of directors fiduciary duties.
Consequently, if a director has outside outside of his or her powers, legal action can be taken. If you need advice in this area, please do give us a call. We can also advise on practical ways to limit directors powers to provide clarity and to reduce the likelihood of having to make a claim as a shareholder in the future.
Fraudulent trading arises when directors of a company allows it to incur debt when they know there is no good reason for thinking that funds will be available to repay the amount owed when it becomes due or shortly afterwards. This is a criminal offence which can strike if the director ought to have known about fraudulent trading.
Wrongful trading is where a director ought to have known that there was no reasonable prospect that the company would avoid going insolvent and thereafter the director failed to take every step he ought to have taken, with a view to minimising creditors losses. Unlike fraudulent trading, it is not necessary to show intent. Directors may be liable to contribute to the company’s assets. This also applies to shadow directors and sometimes non-executive directors.
If a director or former director of an insolvent company is found to have engaged in conduct which makes him unfit to be concerned in the management of a company, the court can order that he be disqualified from being a director for between two and fifteen years.
Asset freezing claims against directors
Where a director has given a personal guarantee and the lender is concerned he will attempt to dissipate assets which could be used to satisfy the debt, the court may freeze his assets in this jurisdiction, pending further proceedings.
The court has wise discretion to determine the extent of a director’s liability. Whilst the court can apportion liability in any of claims against directors – there is no guarantee.
Claims against the directors on insolvency
Where a company is entering into (or approaching) administration, being wound-up or liquidated the directors duty shifts from acting in the interests of the company to acting in the interests of the creditors, with a view to minimising losses. However, it is not clear when exactly this duty shifts across to the creditors during ‘the twilight zone’ before insolvency. The shift does not depend on a snapshot of the company’s financial position but rather the directors rational expectations of what the future may hold.
As soon as a director becomes aware that a company is approaching financial difficulty they should take steps. This applies collectively as a board and on an individual level.
We can help if you are a company director worried about or facing any type of legal claim against you or you want advice on suing a director personally or you have reasons to believe a director is breach of fiduciary duties. Get in touch.