Being a company director naturally brings with it such benefits as autonomy, decision-making power and the freedom to implement one’s vision. Increasingly, however, the role is also fraught with potential pitfalls: financial liability, accountability for others’ misconduct and ongoing responsibilities, to name but a few. We have examined the changing climate for directors and are offering advice to both existing and aspiring directors on how to tread carefully, now and in the coming months.
In line with the Companies Act 2006, a director owes certain duties to his or her company, some of which – those regarding conflicts of interest and accepting benefits from third parties – continue even after the directorship has come to an end.
Likewise, a director may be found personally liable for wrongful trading if a company goes into insolvent liquidation, regardless of whether or not they have been dishonest or have since resigned. The long-term repercussions of directorial conduct don’t end here: failure to meet one’s responsibilities as a director can lead to disqualification, which prevents involvement in the formation, management or promotion of a company for up to 15 years.
Alongside these established factors is the new Finance Bill 2019-20, which will take effect from 6th April next year. In essence, the bill will increase HMRC’s remit where directors are concerned – allowing it to issue notices to directors and make them personally liable for the tax liabilities of an insolvent or soon-to-be-insolvent company – whilst partially reinstating the government body as a preferential creditor in insolvency, for taxes held on behalf of other taxpayers.
Partner John Griffin explains: “With so many risks tied to the role of company director in both the short and long term, and given the imminent changes of next year’s Finance Bill, it is imperative that a director monitors their company’s finances closely and regularly.
“By establishing and maintaining systems which demonstrate that they are aware of the potential issues surrounding employees and customers, a director will be able to back up their claims of acting honestly and vigilantly, should they find themselves in a financially vulnerable position.
“We would urge any directors apprehensive about how best to protect their position, as well as prospective directors keen to cover all bases, to seek professional advice well before 6th April 2020.”
For further information, please call our Leicester branch on 0116 254 9262 or our Loughborough branch on 01509 263500.