Company action against directors

One of the most astute appointments I have ever made

A company director we successfully defended against disqualification

Directors are subject to a number of duties to ensure that they act properly when acting as a director of a limited liability company.

Directors duties

Directors duties are set out in a variety of places, including legislation, common law and various corporate governance codes. When a company nears insolvency, then directors duties change and they must predominantly be to protect the company’s creditors.

Directors owe fiduciary duties to the company to act with skill and care and good faith so that the company and the public can have trust and confidence in directors. Many of these duties are now codified under company legislation.

Directors duties are owed by all directors, including persons occupying the position of director even if they aren’t registered at Companies House. This includes:-

• registered directors, both executive and non-executive;
• de facto directors – a person that on the face of it acts and appears as a director but is not registered;
• shadow directors – “a person in accordance with whose directions or instructions the directors of the company are accustomed to act”.

Core duties of a director include:-

• to act within the powers conferred on the director though company constitutional documents;
• to act in the best interests of the company;
• to avoid a conflict of interest;
• not to make unauthorised profit;
• not to fetters one’s own discretion.

Who can bring a claim?

The company can bring a claim against a director that they believe is acting in breach of one or more of their duties if necessary.

Additionally, an aggrieved individual director or a shareholder might also make an application against a director personally.

If there is misconduct but for whatever reason the company does not wish to take a claim for breach of duty, a shareholder might be permitted to do this by way of a derivative claim, effectively in the place of the company.

Remedies for breach

If breach of duty is found, then a court has wide powers to set aside transactions or to restore a company’s position to the position before a director breached their duty. The court can make any order it sees fit if a director is found guilty of misconduct.

• a company is likely to want to try to settle any problems with one of its directors before making the decision to bring proceedings against a director;
• inevitably, if a director is taken to court by a company, then this will result in the full breakdown of a relationship between the director and company for the future and can be costly for all parties.

Therefore, a company considering this course of action would need to be very clear that a breach has occurred that is either deliberate or is continuous despite a director being warned, and is at serious risk of prejudicing the company’s aims and progress.

The starting point would be for the company to approach the director that they believe is breaching or has breached a duty to determine their point of view. However, if there is a clear breach, particularly where a director is, for example, diverting assets or is personally benefiting to the prejudice of the company, then it is unlikely that there is any ambiguity.

If a company or any party is considering a claim against a director, then it is essential that legal advice is taken on the claim, including the chances of success and the steps to take. At Francis Wilks & Jones our team frequently act for companies, shareholders and directors in these situations and a senior member of our team will be available to speak to you immediately. Similarly, if you are a director who is accused of breaching a duty, it is essential that you take legal advice as soon as possible on your options.

Francis Wilks & Jones dealt with all negotiations through to settlement for a sum which I was able to afford. This was a magnificent result and their fees paid for themselves as a result of the settlement which otherwise may have led to bankruptcy proceedings against me. I am very fortunate that I instructed this firm and would have no hesitation in recommending them to any director in similar circumstances

A client who was facing claims by a liquidator for the improper withdrawal of sums from an insolvent company. We negotiated a settlement