Directors Duties in Distressed Scenarios – England and Wales

March 2023
Region: Europe

Directors have statutory duties that they owe to the company. While 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. Directors must take into account factors, such as the environment, employees, the standard of their business conduct, business relationships with suppliers and customers, and any other relevant circumstance.

However, if the company’s financial position worsens, then, in addition to those statutory duties, directors will also need to take into account the interests of the company’s creditors. Knowing when the creditor duty arises is a difficult balancing exercise but failing to consider it could mean that a director faces personal liability if the company fails.

In this latest Insight we consider some of the claims that directors could face if they fail to comply with their duties, and suggest steps that directors can take to mitigate against those.