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Recent Director’s pitfalls (and how to avoid them!)

A recent case saw the director of Building and Dismantling Contractors Ltd imprisoned for gross negligence manslaughter for 6 years when two of his employees fell through a sky light while working to dismantle a rooftop. The director was also fined £400,000 and ordered to pay the court costs of £55,000.

In the same matter, a director of C. Smith and Sons Ltd was also imprisoned for 8 months, fined £90,000 and ordered to pay the court costs of £45,000 for his breach of health and safety regulations. It was said by Detective Chief Inspector Richard Eales that both directors saw an opportunity to make a quick profit without any thought for the workers they sent on to the roof or their obligations as a director.
Another case found the director of Grenade Energy Ltd to be jointly liable with the company in relation to trade mark infringement and passing off. As the director was the sole director and shareholder, the court found that it was not possible for anyone else to be responsible and that the director actively co-operated with his company to commit the acts.
Importance of duty
Other matters which can result in a director being liable include; failure to maintain company records and accounts and also breaches of the statutory rules seeking to protect a company’s share capital.
Controls on a director’s role do exist, known as the general duties. Although the general duties of a director may appear to be vague, it is extremely important for a director to be aware of their general duties and obligations, because the consequences of a breach of duty can be life changing.
The seven general duties are;

  • To act within their powers
  • To promote the success of the company
  • To exercise independent judgement
  • To exercise reasonable care, skill and diligence
  • To avoid conflicts of interest
  • Not to accept benefits from third parties
  • To declare an interest in a proposed transaction or arrangement

In addition to these duties, common law imposes a duty of care and skill on all directors as well as fiduciary duties. It is important to note that the fiduciary duties of being a director do not all cease once the director resigns. Duties such as; the duty to avoid conflicts of interest, the duty not to make an unauthorised profit and the duty of confidentiality are continued after the resignation of a director.
Service agreements
It is important that a director enters into a service agreement on their appointment. Just as a contract of employment would, this service agreement will govern the terms of their service, and detail the duties and responsibilities imposed on a director. Here at Wilson Browne, we are able to draft and provide a service agreement for your director’s which is tailored to the needs of the business as well as clearly stating the obligations and responsibilities that will be held by the directors. Both a director and the company will benefit from a clear and well drafted agreement as this can prevent disputes over liability.
Shareholder agreements
A shareholders agreement can be used in a private limited company to set out terms governing issues, transfer of shares, directorship and so on between individual shareholders. Again this can set out the clear position of how the relationship between each shareholder will be structured and can clearly manage their personal rights and interests.
Benefits of advice
From the early stages, Wilson Browne are happy to advise on matters relating to liability. There is no doubt that a director or a shareholder can benefit from discussing the legal implications of their proposed actions before hand to avoid any potential liability. As can be seen above, there are many risks involved when taking on the position of director, and Wilson Browne are here to support you through this journey as a director.
To arrange a free consultation with one of our specialists, please call 01604 876697 today.