Legal Obligations of the Directors of the Brewery

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Companies Investigation Branch

Companies Investigation Branch investigates existing companies where there is suspicion of corporate abuse or other grounds to investigate. In April 2006 Companies Investigation Branch merged with the Insolvency Service, an Executive Agency of the Department for Business & Regulatory Reform. 

http://www.insolvency.gov.uk/cib/

What are the Directors? duties to the company?

Directors? general duties to their companies are, for the first time, comprehensively set out in the Companies Act 2006 but these provisions are coming into force in separate stages: most of them came into force in October 2007; and those on conflicts of interest will come into force on 1 October 2008. The general duties of directors were previously contained in case law. See the Department of Business, Enterprise & Regulatory Reform website www.berr.gov.uk for further guidance.


RELEVANT EXTRACTS FROM COMPANY LAW

Separate Legal Entity - It is important to be clear that you (a Company Director) and the company are separate legal entities.

You must comply with employment law in all dealings with employees or you may be found personally liable for unfair dismissal, racial or sexual discrimination or unfair work practices. You should also ensure that the company complies with all employment law changes.

There are also health and safety responsibilities that you must follow. You must ensure that you carry out a risk assessment and put a health and safety policy in place. If you employ more than five people your health and safety policy must be in writing.

Failure to carry out some of these duties, such as where health and safety is concerned, can result in a criminal conviction.

You must exercise a degree of skill and care. You must:

    * show the skill expected of a person with your knowledge and experience
    * act as a reasonable person would do looking after their own business

You must act in good faith in the interests of the company as a whole.



Fiduciary duty

Each director must act in accordance with what he or she believes to be the best interests of the company. Directors must not place themselves in a position in which there is a conflict between their duties to the company and their personal interests. For example, in a take-over bid, the fact that the directors as individuals might hold between them a majority of the voting shares does not mean they can follow their own individual wishes.

Care and skill

The standard of care expected is, ?such care as an ordinary man might be expected to take on his own behalf?. The degree of skill expected is ?such a degree of skill as may reasonably be expected from a person with (the particular director?s) knowledge and experience?.

Wrongful trading

Wrongful trading may be broadly defined as a failure by a director or shadow director of a company to take every step that he or she should have taken to minimise loss to creditors once he or she knew or ought to have known that the company was unlikely to avoid insolvent liquidation.

Disqualification

Grounds

A disqualification order may be made against a director on the grounds of:

    * Responsibility for wrongful or fraudulent trading
    * Unfitness to be concerned in the management of a company

A disqualification order may also be made if someone is found guilty of an indictable offence in relation to a company, or is in persistent default of filing requirements under the Companies Act 1985. The Companies Act includes some sixty-nine indictable offences, and there are about fifty separate duties placed on directors with regard to filing, so there is great scope for a director to be guilty of either an indictable offence or persistent default!

The CDDA1986 sets out certain particulars to which the court is to have regard where it has to determine whether a person's conduct as a director makes them unfit to be concerned in the management of a company (S9). The detailed list of matters to be considered is set out in Schedule 1 to the Act.

In the normal case, the conduct complained of must display a lack of commercial probity, although... in an extreme case of gross negligence or total incompetence, disqualification could be appropriate.'

Consequently, even where there is no dishonesty, incompetence may render a director unfit.