Accounting for Brighton

Directors Behaving Badly?

Think Martin Clunes and Neil Morrissey running a company…
Although in two minds as to whether this was an appropriate topic for wider publication it is an important subject. This week we look at the not so exciting subject of directors’ responsibilities when running a company. Think Gary and Tony romping around the office and what that would bring to your business. Here’s how the directors should behave.

Prime duty

In Star Trek the prime-directive is ‘not to interfere with the internal order of alien civilisations’. In a company the prime-duty is ‘Directors hold a position of trust; their prime-duty is to manage the company for the benefit of the shareholders and not for any individual shareholder or group of shareholders’. Not adhering to the prime-duty in your company is unlikely to wipe out an entire civilisation but it is probably best not to chance it.

Statutory duties

The Companies Act 2006 codified many of the issues surrounding ‘conflicts of interest’ such that there are now seven statutory duties.

1) Directors must act within the powers conferred by the company’s articles, for example they may not issue shares to further the holding of a particular shareholder.

2) Directors must promote the success of the company for the benefit of the shareholders.

3) They must exercise independent judgement when making decisions.

4) Directors must exercise reasonable care, skill and diligence and higher standards are expected when they have specialist or professional knowledge.

5) They must avoid all conflicts of interest particularly in any property, information or opportunity transaction.

6) They may not accept benefits from third parties. And finally,

7) A director must declare any interest in any proposed transaction or arrangement where there may be a conflict between them or with any person connected to them. Any conflicts in points 1 through 7 should be declared to the board of directors and recorded in the minutes of the company. Any failures to declare can result in fines.

Legal duties

There are also certain legal duties to be careful of:

1) Directors who fail to prepare and deliver documents on behalf of the company could get a criminal record and a level 5 fine of up to £5k (now there’s a reason to get your records to your accountant on time).

2) Shareholders may take legal action through the company against any director who is personally liable for a loss suffered due to negligence, default or breach of trust.

3) The Insolvency Act says proceedings may be brought against the directors if they knew or should have known that the company was insolvent or trading fraudulently with the intent to defraud the creditors.

4) Directors can be held liable under the Health & Safety at Work Act.

5) There are personal liabilities surrounding the disposal of hazardous waste. And

6) The UK Enterprise Act imposes a personal liability on directors for breaches of competition rules.

To conclude

As funny as it might be it is probably fair to say that Gary and Tony would last all of three minutes running a company. Just make sure your accountant gets any information they need on time, use their company administration service and then get on with running your business.

Fifth Element is a local Brighton-based
accountancy practice offering
expertise in all aspects of Accounts Preparation, VAT, Taxation,
CIS, PAYE, Tax Planning, HMRC Issues and Business Development.