• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
Logo
Eastbourne: 01323 407555
Brighton: 01273 069920
Uckfield: 01825 729840
Hastings: 01424 709050
London: 0203 9677700
  • Email
  • Facebook
  • Instagram
  • LinkedIn
  • Twitter
  • Home
    • Key Worker Discount Offer
    • Meeting Room Hire
    • Network My Club Member Offer
  • Services For Business
    • Business Law Retainer Packages
    • Auction Sales & Purchases
    • Business Purchase or Sale
    • Corporate and Commercial Advice
    • Partnership Agreements
    • Shareholders Agreements
    • Commercial Litigation
    • Commercial Property Law
    • Construction & Development
    • Employment Law
    • GDPR and Regulatory Support
    • Intellectual Property
    • Lasting Powers of Attorney for Business
    • Nursery and Childcare Law
    • Retail & Commercial Leases
    • Sports Law
  • Services For You
    • Civil Disputes & Litigation
    • Conveyancing
      • Buying property through a limited company
    • Equity Release
    • Property Law
    • Wills & Estate Planning
    • Contesting a Will
    • Executors & Probate
    • Lasting Power of Attorney
    • Lease Extensions and Enfranchisement
  • Our Team
    • Commercial Property and Development Team
      • Hamed Ovaisi
      • Hamish Smith
      • James Halpin
      • Seema Anant
    • Corporate and Commercial Legal Team
      • Hamed Ovaisi
      • Daniel Halls
    • Residential Property Team
      • Jamie Salvidge
      • John Thorpe
      • Nicole Byrne
      • Francesca Lyons
      • Chris Hoadley
      • Katie Handoll
      • Hemmat Ovaisi
      • Nicole Hoddinott
      • Sebastian Hale-Smith
      • Marco Difato
      • Victoria Parnell
      • Amelia Gobey
      • Joe Kennedy
    • Litigation Team
      • Kent Reynolds
      • Michael Mulcare
      • Ashleigh Evans
      • Sue Linford
    • Lease Extensions, Right to Manage and Enfranchisement Team
      • Hamed Ovaisi
      • Jamie Salvidge
      • James Halpin
      • Seema Anant
    • Private Client Team
      • Jamie Salvidge
      • John Thorpe
      • Nicole Hoddinott
    • The Support Team
      • Will Taylor
      • Andy James
      • Jade Long
      • Samantha Kavanagh
      • Anais Taylor
    • Join the Team
    • Paralegal to Trainee Scheme
      • Paralegal to Trainee Case Studies
  • Legal Insights
  • Legal Resources
    • Seminars
    • Legal Podcast
  • Testimonials
  • Contact Us

Directors’ duties in challenging times

January 11, 2021 By SO Legal

While the government continues to take steps to limit the impact of the lockdown on the UK economy, many companies face challenging times, with directors playing a pivotal role in formulating and steering their company’s response to a pandemic.

Directors' Duties

To assist, Trainee Solicitor, Daniel Halls has summarised the statutory duties owed by UK directors under the Companies Act 2006, the potential risks of continuing to trade while possibly insolvent, and actions that should be taken in order to mitigate those risks.

Directors’ duties

  • Directors must promote the success of the company for the benefit of its shareholders. However, the emphasis changes if the company is, or is on the verge of insolvency. If a company becomes insolvent the directors must put the interests of creditors as a whole before those of shareholders. The precise details of what factors they should consider in order to comply with those duties will vary from case to case. We recommend that company directors should seek professional advice if in any doubt.

When will a company be deemed to be insolvent?

  • As a general rule, there are two tests to deem whether a company is insolvent. Firstly, a company is likely to be insolvent if it cannot pay its debts as they fall due. Secondly, if its liabilities (taking into account its contingent and prospective liabilities) exceed its assets. If directors think their company may be insolvent on either test, their duties are owed primarily to creditors, as highlighted above.
  • The application of these tests in such unprecedented times has not yet been tested, and will no doubt develop as this period of economic uncertainty continues.

What are the consequences of a company trading whilst insolvent?

  • Directors may be liable for wrongful trading where the company continued trading at a time when they knew (or should have known) that there was no reasonable prospect of the company avoiding insolvency, and they failed to take every step a reasonably diligent person could be expected to take to minimise the loss.
  • Fraudulent trading occurs if it appears that any business of the company has been carried on with intent to defraud creditors or for any fraudulent purpose. It may be sufficient to show that a company continued to carry on business and to incur debts at a time when there was, to the knowledge of the directors, no reasonable prospect of those debts being paid. Fraudulent trading is also a criminal offence, punishable by a fine or imprisonment.

What can directors do to mitigate the risk?

  • Review the ongoing financial position of the company in the light of the crisis.
  • Keep detailed written records of all board meeting decisions.
  • Seek advice from insolvency practitioners and lawyers.
  • Ensure they can justify their actions, to promote the success of the company.

 

If you are a director of a company affected by the pandemic, then our corporate team is available to offer support and further guidance.

 

SO Legal Solicitors Eastbourne – 01323 407555

SO Legal Solicitors Brighton & Hove – 01273 069920

SO Legal Solicitors Hastings – 01424 709050 

SO Legal Solicitors Uckfield – 01825 729840

SO Legal Solicitors Notting Hill – 0203 9677700

 

Follow us on Instagram, Facebook or LinkedIn

Filed Under: All Insights, Corporate and Commercial Tagged With: business, company, director, insolvency, insolvent

Primary Sidebar

Online Enquiry

IMPORTANT NOTICE: The information you provide will only be used by us to administer your enquiry and to enable the relevant team member to provide a timely response. Submitting an enquiry does not create a lawyer-client relationship. Your contact details and personal information will be processed in line with our Privacy Policy which can be viewed below.

Featured News

Directors’ duty to avoid conflicts of interest

The Companies Act 2006 introduced a number of duties to which all company directors are subject – known as fiduciary duties. A director’s conflict of interest refers to a situation in which a director’s personal interests (or the interests of other persons to whom the director owes duties) are at odds with the duties owed to the company. The statutory duties … [Read More...] about Directors’ duty to avoid conflicts of interest

Insurers set to pay £1.2bn to small businesses for coronavirus lockdown losses

Tens of thousands of small businesses will receive insurance payouts covering losses from the first lockdown, following a landmark Supreme Court ruling. The ruling appears set to force insurers to pay out on disputed coronavirus business interruption claims worth an estimated £1.2bn. Appeals by the Financial Conduct Authority (FCA), six insurers – Arch, … [Read More...] about Insurers set to pay £1.2bn to small businesses for coronavirus lockdown losses

Footer

Eastbourne Office

15 Gildredge Road,
Eastbourne,
East Sussex BN21 4RB
enquiries@solegal.co.uk
01323 407555   Fax: 01323 732697

Notting Hill Office

1st Floor, 81 Palace Gardens Terrace,
London W8 4AT
enquiries@solegal.co.uk
0203 967 7700

 

Brighton and Hove Office

26 Marlborough Place
Brighton,
BN1 1UB
enquiries@solegal.co.uk
01273 069920

Hastings Office

1st Floor, 8-10 Trinity Street,
Hastings, East Sussex, TN34 1HG
enquiries@solegal.co.uk
01424 709050 

Uckfield Office

First Floor Offices, Suite D, Eden House,
The Office Village, River Way,
Uckfield, East Sussex TN22 1SL
enquiries@solegal.co.uk
01825 729840

Our Privacy Policy

Click here to view our Privacy Policy 

Privacy Policy | Copyright © 2021 · Authorised and regulated by the Solicitors Regulation Authority of England and Wales with registered number 626568
Created and hosted by LEAP · Log in

This site tracks visits anonymously using cookies. Close this dialogue to confirm you are happy with that or find out more in the Privacy Policy. Agree and close
Privacy & Cookies Policy
Necessary
Always Enabled