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Company insolvency: potential liabilities of directors

Published Monday, December 16, 2019

This Commons briefing paper provides a brief overview of directors' duties and potential liabilities in relation to companies in financial difficulty. In particular, it looks at liability for wrongful and fraudulent trading and under the directors disqualification regime.

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Directors manage the day-to-day management of a company; decisions are taken collectively by the board of directors. In practice, decisions are either taken by a majority vote at board meetings or by all directors signing a written resolution. The director's role and his powers are defined in the company's Articles of Association and, if he is also an employee, in his employment contract.  

Certain key duties of directors are contained in the Companies Act 2006. Directors are also subject to a number of other statutory requirements and restrictions, for example, a duty to keep proper books and restrictions on accepting loans from the company. Directors owe a duty to the company and, if there is a risk of insolvency, to creditors. It is important to note that whilst certain provisions of the  the Insolvency Act 1986 only apply when a company has gone into liquidation, they may relate to the conduct of the directors before the liquidation.

This Commons briefing paper provides a brief overview of directors' duties and potential liabilities in relation to companies in financial difficulty. In particular, it looks at liability for wrongful and fraudulent trading and under the directors disqualification regime. The information contained in this briefing paper, and corporate insolvency legislation generally, applies to England and Wales, and Scotland.

Commons Briefing papers CBP-7936

Author: Lorraine Conway

Topic: Insolvency

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