Our guide summarises the duties that directors of companies incorporated in England and Wales are subject to and explains those duties, and matters that directors should consider in relation to those duties, in the context of the developing coronavirus disease 2019 (COVID-19), commonly known as the “coronavirus” or simply, COVID-19, pandemic.
Directors have statutory duties that they owe to the company. Each director owes these duties individually. In the exercise of those duties, generally and whilst the company trades solvently, the directors must act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. Their statutory duties require that the directors also take into account wider factors such as the environment, employees, the standard of their business conduct, business relationships with suppliers and customers, and any other relevant circumstances.
If the company becomes insolvent, whilst these statutory duties are still owed legally to the company, they become subject to other interests to which the directors should have regard, such as those of the creditors of the company. However, the interests of the shareholders are still relevant.
A breach of any of the statutory duties is actionable by the company, and any right of action could be exercised by an appointed insolvency practitioner should the company later enter a formal insolvency process.
The law makes no distinction between executive and non-executive directors or shadow directors. All members of the board have the same duties to the company. A director must exercise reasonable care, skill and diligence. This means the care, skill and diligence that would be exercised by a reasonably diligent person with the general knowledge, skill and experience that may be reasonably expected of a person carrying out the functions carried out by a director in relation to the company and the general knowledge, skill and experience of that director.
Whilst the interests of shareholders remain relevant during any period in which the company is, or may be, insolvent, the directors should not be influenced by any power any individual shareholder has to remove or replace the directors (or any of them) and must act in what they consider to be in the best interests of the company’s creditors.
Our guide covers:
Trading Insolvently/Wrongful Trading
The Impact of COVID-19
Deposits and Trust Accounts
Restriction on the Use of Company Names: (s 216 IA 1986)