Being a company director carries a position of authority and responsibility over the way a company is managed. Directors are responsible for the overall performance and success of the company and owe a legal duty both to the company itself and to its shareholders. If the company becomes insolvent, meaning it is unable to pay its liabilities as and when they fall due, directors also have a duty to act in the best interests of the company’s creditors.
Directors’ duties are set out in law under the Companies Act of 2006 and in the company’s articles of association, which can be accessed via Companies House if they are not readily available within company records. In addition, directors may have specific duties defined in their employment or service contracts.
The Companies Act 2006 establishes seven key statutory duties for directors:
Directors must ensure all decisions and actions are consistent with the company’s governing documents.
Directors must consider the long-term consequences of their decisions, the interests of employees, the impact on the community and the environment, and the company’s reputation. They are also required to act fairly toward all members of the company.
Directors may delegate responsibilities or seek advice, but they remain ultimately accountable for any decisions made.
Directors are expected to perform their role with competence and attention, using their knowledge and experience effectively.
Directors must ensure that personal interests do not interfere with their duties to the company.
This duty effectively prohibits bribery or any undue influence from external parties.
Directors must disclose potential conflicts of interest to maintain transparency and protect the company’s integrity.
Beyond these statutory duties, directors also have responsibilities related to record-keeping.
They must maintain proper accounting records that accurately reflect the financial position of the company at any time. Annual accounts must be prepared, typically with the assistance of a qualified accountant, and should include a profit and loss account, a balance sheet, and a director’s report that presents a true and fair view of the company’s affairs. These accounts must be filed at Companies House within nine months of the company’s financial year-end.
Directors must also maintain minutes of board meetings. If a company has multiple directors, the board must keep written records of all decisions made. Even in companies with a sole director, it is best practice to maintain written records of meetings and key decisions. These records must be retained for a minimum of ten years.
Another critical responsibility is to ensure that information filed with Companies House remains accurate and up to date. Companies House maintains a public record of company information, including confirmation statements, annual accounts, details of officers such as directors and company secretaries, registered office information, charges or mortgages, and details of people with significant control over the company. While directors can delegate administrative tasks to a bookkeeper or accountant, ultimate responsibility remains with the director.
In addition to statutory duties, directors have non-statutory duties that are equally important.
These include a duty of confidentiality, which prevents the disclosure of company information unless it benefits the company.
Directors’ responsibilities do not end upon resignation. Some obligations, such as avoiding conflicts of interest and refraining from accepting benefits from third parties, continue even after leaving the company.
Directors who have provided personal guarantees should also exercise caution in insolvency situations, ensuring that actions taken to reduce personal liability do not unfairly prejudice other creditors.
Overall, directors must act with integrity, diligence, and transparency, fulfilling both statutory and non-statutory duties to safeguard the company, its shareholders, and its creditors. Understanding and adhering to these responsibilities is crucial for the effective management of any company, particularly in times of financial difficulty.
I am Molly Monks, a licensed insolvency practitioner at Parker Walsh. I have over 20 years of experience helping directors with the financial struggles they may face. I understand that it can be overwhelming and stressful, so I offer practical straightforward advice, which is also free and confidential. I spend time with directors to get a good understanding of their business and their goals, therefore providing the best tailored advice possible.
Email: molly@parkerwalsh.co.uk
Phone: 0161 546 8143
WhatsApp: 07822 012199
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