As a director you are under a duty to act in the best interests of the company and its shareholders. However, once you form the view that the company is in financial difficulties or is irredeemably insolvent, your duty is to act in the interest of the company's creditors. Failure to comply with this duty notwithstanding the limited liability status of a Company can expose directors to the risk of personal liability for any losses sustained by the company's creditors following it's insolvency.

Common claims that can be brought against directors are:

  • Claims under the Insolvency Act such as wrongful trading, misfeasance or fraudulent trading
  • Claims under the Companies Act for breach of duties
  • Directors Disqualification Proceedings
  • Claims for repayment of director’s overdrawn loan accounts
  • Claims in relation to dividends paid out in excess of distributable reserves
  • Personal Guarantee Claims

It is very important to seek advice sooner rather than later.

At Sydney Mitchell we are able to assist in providing you with clear practical advice to either prevent any personal claims against you or assist you in reaching a solution. We offer a free initial consultation on a no obligation basis

Leanne Schneider-Rose Sydney Mitchell LLPFor advice on any of the above matters please contact

 

Leanne Schneider-Rose, Partner on 0121 698 2211

l.schneider-rose@sydneymitchell.co.uk

 

 

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Wrongful Trading, Misfeasance or Fraudulent Trading

These are claims under the Insolvency Act brought by Insolvency Practitioners against directors where it is considered that a directors actions were either wrongful, fraudulent or in breach of his/her duty to the company which caused the company to sustain a loss.  As a result of the directors actions the Insolvency Practitioner can bring a claim against the director to try and claim back from him/her any loss that the Company sustained as result of such actions.

Claims under the Companies Act for breach of duties

Under the Companies Act 2006 directors have the following duties:

  • Duty to act within powers
  • Duty to promote the success of the Company
  • Duty to exercise independent judgment
  • Duty to exercise reasonable care skill and diligence
  • Duty to avoid conflicts of interest
  • Duty not to accept benefits from third parties
  • Duty to declare an interest in a proposed transaction or arrangement with the company

A breach of any of these duties could lead to a claim being brought against that director by the Company (whether it is in a formal insolvency arrangement or not).  

Repayment of Directors overdrawn loan account

If as a director you have an overdrawn loan account and the Company enters into Insolvency that overdrawn loan account is a debt due to the Company which you are personally liable to repay.

Dividends paid

If as a director you have allowed a payment to shareholders, called a distribution or a dividend, in excess of the company’s distributable reserves the amount paid in excess of the distributable reserves is subject to being repaid by the shareholder or if that is not possible from the director for authorising or allowing the payment to be made.  Quite often directors are also shareholders.

Personal Guarantees

If you have given a personal guarantee to the Company’s lender, following the insolvency of the company, the lender is likely to call upon you under the terms of the personal guarantee for payment.  You may have also secured the payment of the personal guarantee against your home which the lender may sell to repay company debts but only to the amount stated in the personal guarantee if it is for a limited amount.

 

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