Exercise your responsibilities carefully as the penalties for failure to do so can be severe.
You could be held personally liable for losses resulting from some acts or omissions. These include illegal acts such as wrongful or fraudulent trading and acts beyond your powers or undertaken without sufficient skill and care.
- You can be jointly and severally liable for the consequences of all the directors if you act collectively in breach of your responsibilities.
- You could be disqualified from acting as a director for some types of conduct.
- Some actions could result in criminal convictions. They include failure to keep proper accounting records, fraudulent trading, health and safety shortcomings and misappropriation of company funds.
- Companies or individuals that breach antibribery legislation face criminal penalties, including possible unlimited fines. Directors also face jail sentences of up to 10 years.
- The consequences of breaching competition law are also severe and include fines against the company of up to 10% of global turnover, potential imprisonment of individuals’ involved and potential disqualification of directors.
- Either the breach of duty itself, or the imposition of one of the sanctions described above, may lead to disciplinary action being taken against you and/or limitations upon you being able to continue in your role.
Limitation of liability
The Director’s liability can be limited in the following manner:
- Following an event, shareholders can ratify the director’s conduct which amounts to negligence, default or breach of duty.
- Following an event, a court may relieve a director of his/her liability to the company, although not to third parties, if it appears to the court that the director acted in good faith, honestly and reasonably, and ought fairly to be excused.
- A company may provide indemnity for its directors against liabilities incurred by the director from third parties.
Delegation of authorities
In the UK, there are no requirements under statute for who within a business must sit on a group company board, though it may be contained in the Articles, or otherwise agreed by the board itself. It is therefore possible for
the board to delegate any of its powers to a committee of one or more of the directors.
Directors and officers (“D&O”) insurance
It is common for companies to maintain (and pay the premium for) directors’ and officers’ liability insurance and the company may, subject to the provisions of its articles of association, also be able to indemnify the director, subject to certain limitations.
Statute of limitation
In the UK the Limitation Act will apply – this is usually, six (6) years from the date on which the cause of action occurred for simple contracts, or twelve (12) years if the contract was executed as a deed.
The directors or shareholders may in some circumstances authorise or ratify acts or breaches by individual directors, absolving them of their liability. Further, the court may grant relief from liability for a breach if it considers a director to have acted honestly and reasonably having regard to the circumstances of the case.
Latest version updated
22nd March 2018