Understanding Limited Company Director Responsibilities

Becoming the Director of a Limited Company has a number of key responsibilities which are conferred by law, and it is therefore important to be aware of these and why they exist, so that you can take steps to operate compliantly and manage your company effectively.

The Legislation Which Applies

RESPONSIBILITIES CONFERRED BY THE COMPANIES ACT 2006

As the Director of a Limited Company, you have certain legal “general duties” as outlined in the Companies Act 2006.  You must:

• Adhere to the company’s constitution (Articles of Association, and Memorandum of Association).
• Promote the success of the company and act in its best interests.
  • Note – If the company becomes insolvent, your responsibilities as a director will apply towards the creditors, instead of the company itself. A creditor is anyone owed money by the company.
• Apply independent judgment when making final decisions and managing the company, even if you receive external professional advice (e.g. from an Accountant).
• Exercise reasonable care, skill, and diligence to manage the company to the best of your ability.
• Avoid conflicts of interest both while and after being a Director.
• Not accept benefits from a third parties by virtue of being a Director.
• Disclose any interests in transactions that may benefit you or connected parties (such as your family).
• Not misuse company property.
• Apply confidentiality with regards to company affairs.

In addition to the above “general duties”, Directors also have a responsibility to supply the following information to Companies House:

• Annually:
  • Confirmation statement – Confirming individual disclosures made previously.
  • Financial statements
• As they occur:
  • Changes to the company’s officers or their personal details
  • Changes to the company’s registered office address (ROA)
  • Allotments of shares
  • Registration of any charges
  • Changes to the company’s people with significant control (PSC) or their personal details

RESPONSIBILITIES CONFERRED BY THE INSOLVENCY ACT 1986

In addition to the responsibilities contained within Companies Act, the Insolvency Act 1986 outlines a number of key areas directors need to understand, to protect themselves if there is a risk of the company they are managing becoming insolvent.

In particular, the Act defines two terms:

Wrongful Trading – Where a company has gone into insolvent liquidation, and at some time before the commencement of the winding up of the company, a Director knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation (or entering insolvent administration).

Fraudulent Trading – If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose.

Within this context “Wrongful Trading” therefore effectively occurs where a Director continues to trade and incur additional liabilities when they knew, or should have concluded, that there was no reasonable prospect that the company would avoid liquidation. Taken together with the Companies Act rule stated above that: “If the company becomes insolvent, your responsibilities as director will apply towards the creditors, instead of the company itself.”  It is clearly essential that where a company is building up debts which potentially cannot be repaid, that professional insolvency advice is sought without delay!

If found guilty the penalties of Wrongful Trading or Fraudulent Trading the penalties can be very severe including: Directors held personally responsible for company debts, Director Disqualification, Fines, and possible imprisonment.

RESPONSIBILITIES CONFERRED BY THE HEALTH AND SAFETY AT WORK ETC ACT 1975

As employers, companies and staff have a collective and individual responsibility for the health and safety of other staff and the wider public.

Specifically: If a health and safety offence is committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other similar officer of the organisation, then that person (as well as the organisation) can be prosecuted under section 37 of the Health and Safety at Work etc Act 1974.

If found guilty the penalties of breaching the health and safety laws can be severe including: Director Disqualification, Fines, and possible imprisonment.

CORPORATE MANSLAUGHTER AND CORPORATE HOMICIDE ACT 2007

In extreme cases where a Director is found guilty of gross negligence manslaughter, the maximum penalty is life imprisonment.  And the company itself may also be subject to unlimited fines and required to publish the details of the conviction and fines.

Conclusion

Given the number of different pieces of legislation which apply and the detailed nature of the content it can often seem bewildering and frightening at the outset for new Directors.  Nevertheless, the best way to prepare yourself for the exciting role of managing a business is to be well informed at the outset.

QAccounting have specialised in the provision of services for Limited Companies for over 20 years and we are here to help and advise you every step of the way.  You can even bookmark this page as a useful summary for future reference!

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