Director duties – understanding your legal obligations

11th February 2021

Directors must discharge their responsibilities properly or face the consequences, which, if they attract personal liability for debts or criminal sanctions, can be very serious for them.

We work closely with clients to help them understand their legal obligations so that costly and custodial consequences are avoided, as highlighted in the case below.

So what happened?

The Insolvency Service recently disqualified Russell Murch, a director of Pure Point of Sale Limited, after it came to light that he had submitted false invoices to claim more than £185,000 from lenders. Russell Murch was disqualified for 10 years and without permission from the court, he is unable to directly or indirectly become involved in the promotion, formation or management of a company.

The next steps

This case serves as an important reminder from the Insolvency Service that there are consequences for directors who do not meet their legal responsibilities. Alongside the Insolvency Service, other bodies such as Companies House, the Competitions and Markets Authority or a Company Insolvency Practitioner can also apply to have a director disqualified.

The Insolvency Service may investigate a company if it is involved in insolvency proceedings, or if they have received a complaint. Anyone can report a company director’s conduct for being ‘unfit’ and a director can be at risk of disqualification if, for example, they allow a company to continue trading when it can’t pay its debt, they fail to keep proper company accounting records, they fail to send accounts and returns to Companies House, they fail to pay tax owed by the company and/or they use company money or assets for their personal benefit.

What happens if you don’t get it right?

If the Insolvency Service concludes that a director has not followed their legal responsibilities, they will inform the director in writing as to what actions or omissions they believe have resulted in them being deemed ‘unfit’. A director can defend the case in court, or give the Insolvency Service a ‘disqualification undertaking’, which means that they voluntarily disqualify themselves and as a result, the court action against them will end.

Other implications

A disqualified director cannot be a director of any company registered in the UK (or an overseas company that has connection with the UK), nor can they be involved in forming, marketing or running a company. Depending on the circumstances, a disqualified director may also not be able to sit on the board of a charity, school or police authority, be a pension trustee, be a registered social landlord, sit on a health board or social care body, or be a solicitor, barrister or accountant. If a director is found breaking the terms of a disqualification, they could be sent to prison for up to two years.

All company directors should be aware that if they carry out company business on the instructions of someone who is disqualified, they could be prosecuted and become personally liable for company debts.

If you need any reassurance around your duties as a director, we can help – get in touch.

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