Directors' Liability
When are the people in charge of a company liable?
Warning: this page will seem very serious, but it is important to be open about what happens if there is wrongdoing.
There are a few situations in which the people in charge of a company (usually called the Directors) are not protected from liability (eg being sued, or having to make good a detriment caused to the company). The reasons that Directors can be held personally liable in these situations is intended to protect the Membership, suppliers, employers, the public and to uphold the law.
The following is a VERY brief summary, using extremely helpful and detailed guidance shared with us by Martyn Warren. Martyn is an accountant and a Member of the Club - you may have seen him propping up the Balcony on many a summer's evening.
The list may look frightening. But it is important to note that although Directors must exercise due care and diligence, and they must not be negligent, they can make mistakes and get things wrong with no liability accruing. No-one would run a business if this was not the case. T
Defrauding creditors during times of Insolvency
This includes:
Fraudulent trading
Paying one creditor to the known detriment of another, when the Company is insolvent
Wrongful trading
Making a written representation to a creditor (upon which they rely), when it is known to be false and dishonest
Knowingly inducing and procuring a person to act in wrongful violation of rights under a judgment. For example, extracting assets from a Company so that there are no funds to pay for a known liability
Benefiting themselves at the expense of the company
This includes:
Giving contracts to friends or family when someone else would have given better value for money
Not being honest about a connection when the company awards a contract or buys something
Taking bribes
Negligently going against the law that governs companies
This includes:
Not keeping proper records
Not giving the right information to Companies House
Lying to the auditors
Pretending to be a Director if you have been disqualified
(please note the reference to being negligent here - this would not include, for example, sending the company's accounts to Companies House one day late)
Negligently going against other law
This includes:
Not paying the right tax (eg corporation tax, or NI contributions for employees)
Health and Safety breaches
Discrimination breaches
Questions? Comments?
Please note that it might take us a few days to get back to you.
Everyone working on this has busy day jobs, and is giving their time as volunteers.
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