Businesses need to provide a united front to their customers, employees and other stakeholders. Working together for the benefit of all involved is perhaps taken for granted by many. Sadly, disputes are relatively common between Directors and can detract from the prime purpose of the organisation.
The basis for disagreements is quite wide, whether it be differences of opinion over the strategic direction of a business or more troublesome and serious where there is a suspected breach of Director duties and responsibilities.
At this stage it is worth stating that the limited liability afforded to a company applies to its shareholders rather than directors, indeed (as the ICAEW points out) directors could be personally liable if they fail to meet their responsibilities such as:
- If they fail to perform their general duties owed to the company, including to account to the company for profits made from transactions where they had a conflict of interest or did not declare an interest as required.
- For failing to comply with specific duties under company law.
- For false or misleading reporting where the company suffers a loss.
- Under insolvency law, for instance, for fraudulent or wrongful trading;
- If a contribution order is made against them in connection with disqualification proceedings.
Directors can be disqualified and the grounds for this are quite wide.
Directors also owe a fiduciary duty to the company and a breach of that duty can open a director up to claims for not only repayment of money directly lost by the company but consequential loss of profits.
A Board facing a major concern over the suspected actions of a fellow Director may well require legal support to manage the situation.
The disputes are often not clear cut and can be quite complex from a corporate governance, compliance and policy perspective. Typically, taking early action helps prevent a problem from spiraling out of control. This may not involve action against a particular individual, it could involve clarification of legal responsibilities, it may identify a need to change the legal basis of the business and its policies. After a review it could require the organisation to take direct action against an individual for breach of duty, policy or responsibilities.
Misuse of Business Loans
One area where we have seen an increase in concern is the misuse of loans for personal benefit. The pandemic involved a range of responses from Government which provided much needed support for business.
HMRC has launched investigations into the deliberate misuse of the loan system which is resulting in a rise in bankruptcy restrictions and director disqualification undertakings.
Anyone seeking confidential advice on a director dispute should contact Robert Males at Pictons.