A recent case has highlighted the importance of company directors understanding and complying with their duties as directors of a company.

Two directors of Blackburn based BCP (NW) Limited have been suspended from acting as directors of any company for 5 and 6 years respectively. The sentence includes a suspension in managing and/or controlling a company in any way.

The directors of the company, which traded as suspended ceiling contractors and suppliers until it was placed into Administration on 5 November 2010, failed to ensure the company paid £598,547 owed in tax to HM Revenue & Customs. In addition, the directors also failed in their statutory duty to ensure the company maintained adequate accounting records and provided investigators with computerised records which were insufficient to verify the company’s financial dealings.

The Companies Act 2006 (Act) sets out the general directors duties, which must comply with the following rules:

to act within powers;
to promote the success of the company;
to exercise independent judgment;
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.

In addition, directors have certain duties under common law.

The general duties are owed to the company and therefore only the company will be able to enforce them, although in certain circumstances shareholders may be able to bring a derivative action on the company’s behalf.

Remedies for breach of the general duties may include an injunction and/or setting aside of the transaction and/or restoration of company property held by the director and/or damages.

The importance of ensuring you abide by your duties as a director cannot be underestimated; the consequences for breach of your duties can be severe, as seen in this case.

For more information about Directors duties, or for legal advice in relation to any company law matter, please do not hesitate to contact us.

By Debbie King, Company Law Solicitor