Consequences of a breach of duty by a Director

As a Director owes most of these duties to the company, if a duty is breached it is the company which must take action against the Director.  For a breach of any of the duties mentioned above (except the duty to exercise reasonable care, skill and diligence) the following remedies are available:

• The requirement for the Director to account for profits; that is to say surrender any personal profits they have made as a result of the breach of duty.
• The requirement for the Director to return company property which they obtained as a result of a breach of duty.
• The payment of compensation by the Director.
• The rescission of a contract, meaning that the contract is set aside and the parties are put back into the position they were in before the contract was made.
• A court order against the Director to prevent them commencing or continuing a breach.

For a breach of the duty to exercise reasonable care, skill and diligence the usual remedy is damages awarded against the Director for negligence in carrying out their duties.

You may think that your company is unlikely to bring any proceedings against you; however if the company becomes insolvent, its management would be taken over by an Administrator or Liquidator and it would be their duty to bring proceedings against you if you have been in breach to swell the assets of the company.

Some breaches, like failing to file accounts or annual returns are also criminal offences for which you, the other Directors and the company could be fined.  If it seems that the company is not complying properly with these obligations e.g. filing accounts, annual returns and other information with Companies House, or maintaining correct records you and your fellow Directors should do everything you can to make sure that things are done properly.  This could involve engaging a firm of accountants to do it for the company.

A misbehaving Director can also be “disqualified”, following which it would be a criminal offence for them to be “engaged in the management” of a company or limited liability partnership without the consent of the court.  If this happens, it could have very serious consequences for an individual's career or company life.

If the company does become insolvent, or it seems that the company may become insolvent, it is essential that the Directors seek professional assistance, probably from an accountant or insolvency practitioner.

If the company continues to trade whilst insolvent and without the benefit of professional advice there is a risk that the Directors could be made to contribute to the deficit (that is put money in for the benefit of creditors) and/or disqualified.

To discuss a breach of duty with a member of the team contact us on:

Steven Grant on 023 8071 7445 or email stevengrant@warnergoodman.co.uk
Naushad Rahman on 023 8071 7409 or email naushadrahman@warnergoodman.co.uk