With the recent collapses of corporates such as Carillion and BHS, the role of directors and governance is once again being put under the spotlight. All directors, whether they are the directors of an owner managed business or a major public limited company, are subject to certain duties under the legislation of England and Wales. The role of a director carries with it a certain level of status, but that status does not come without responsibilities and duties.
Part 1 of this two-part blog post on directors’ duties and liabilities focused on the proceedings of directors, the types of director and the statutory duties of directors as outlined in the Companies Act 2006. This Part 2 focusses on the additional statutory obligations that directors may be subject to under other legislation.
Additional Statutory Obligations
In addition to the statutory duties under the CA 2006, as discussed in Part 1 of this two-part blog post, a director may be subject to additional obligations that cover everything from bribery to wrongful trading.
The Bribery Act 2010 created four criminal offences:
- Offering, promising or giving a bribe;
- Requesting, agreeing to receive or accepting a bribe;
- Bribing a foreign public official to obtain or retain business; and
- A strict liability offence for any company that fails to prevent bribery by associated persons acting on behalf of the company.
Where a company is convicted of one of the first three offences and such offence is proved to have been committed with the consent or connivance of a director or senior officer of the company, the director or senior officer, as well as the company, will be guilty of an offence.
Under competition law, where a director is involved in formal or informal anti-competitive arrangements with competitors including price fixing, bidding or allocation of customers or markets, such activities are a criminal offence and the director may be liable to a fine, imprisonment or both.
The Data Protection Act 2018 includes the offences of:
- knowingly or recklessly obtaining, disclosing or procuring the disclosure of information without the permission of the data controller; and
- knowingly or recklessly re-identifying information that is de-identified personal data without the consent of the controller responsible for de-identifying the personal data.
A director or other officer can be held personally liable if the offence has been committed with the consent or connivance of, or is attributable to any neglect of, the director or other officer.
Under the provisions of the Equality Act 2010, a director may be personally responsible or jointly and severally liable with the company, where discrimination (direct or indirect), harassment or victimisation takes place because of:
- A person’s age;
- Sexual orientation or marital/civil partnership status;
- Pregnancy or maternity; or
- Race, religion or belief,
even where it takes place in the ordinary course of business or where a director’s conduct has been authorised by the company.
The Company Directors Disqualification Act 1986 states that a director is criminally liable if he acts in the management of the company while disqualified or acts on the instructions of someone whom he knows to be disqualified. In addition, the director may be personally liable for the company’s debts incurred as a result of his or her actions.
If the company commits an offence under environmental law with the consent or connivance of, or this offence is attributable to any neglect on the part of, a director or other officer of the company, then that person (as well as the company) may be subject to criminal prosecution.
The Financial Services and Markets Act 2000 and Financial Services Act 2012 impose civil penalties for disclosing confidential inside information relating to the company’s securities.
Fraud and Misrepresentation:
The Fraud Act 2008 states that it is a criminal offence for a director who intends to make a gain, or cause a loss or risk of a loss to another person, to dishonestly:
- make a representation which is untrue or misleading where he knows that it is, or might be, untrue or misleading; or
- fail to disclose to another person information, which he is under a legal duty to disclose.
Both of the offences require the intention of making a gain or causing loss or risk of loss to another person.
Under the Misrepresentation Act 1967, a director may be liable for damages if he:
- makes a fraudulent or negligent misrepresentation during contractual negotiations;
- fails to make it clear that the director is acting as an agent for the company and not in their personal capacity; or
- breaches an implied warranty of authority if the director concludes a contract on behalf of the company but exceeds their authority in so doing.
The Criminal Justice Act 1993 makes it a criminal offence for a director (or any other person with inside information) to make use of confidential inside information in connection with the companies securities or to disclose inside information other than in the proper performance of the director’s duties.
Health and Safety:
The Health and Safety Act 1974 states that any offence committed by the company in breach of the Act with the consent or connivance of, or attributable to any neglect on the part of, any director, or similar officer could lead to that person being subject to criminal prosecution, as well as the company.
Under the Insolvency Act 1986, a director can find themselves liable to contribute to the company’s assets where a company enters into insolvent liquidation and:
- a director has failed to fulfil his duties, or at all, causing the company to suffer loss;
- there has been ‘fraudulent trading’ (i.e. the directors knew that the company was carrying on trading and there is no prospect of the company paying its debts); or
- there has been ‘wrongful trading’ (i.e. where the director knew, or ought reasonably to have reasonably concluded that there was no reasonable prospect of the company avoiding insolvent liquidation and the director failed to take every step with a view to minimising the potential loss to creditors.
Fraudulent trading is also a criminal offence, which can lead to a fine, imprisonment or both.
While the role of a director carries with it a certain level of status, that status does not come without significant responsibilities and duties. Directors should always be alert to the fact that a failure to properly carry out their duties and obligations under the relevant legislation could see the director incurring potential personal liability, a fine or even imprisonment.
If you would like further information or advice on directors’ duties and their potential liabilities, please get in touch with our corporate team in Stoke on 01782 202020 or email firstname.lastname@example.org.