Tuesday 16 May 2017

Personal liabilities of directors expanding under new corporate governance proposals


Directors can be liable for their conduct or if they breach certain rules and regulations imposed by English or EU law. These liabilities can range from the risk inherent in personal guarantees and warranties of authority to legislation directly relating to directors' duties (such as the 'best interests of the company' requirement in section 172 of the Companies Act 2006), bribery, financial services, corporate manslaughter, employees or environment.


The government's campaign to galvanise corporate governance requirements is set to expand the personal liabilities of directors. For example:


- fines of up to £500,000 per director for companies engaged in excessive nuisance calls


- legal action to hold company directors to account regarding their full range of duties, with proposals to include:


            - company reports on how directors have complied with their duty to promote the success of the company  


            - company reports on how boards 'have regard' for stakeholder interests (such as employees, the local community and environment)


            - company reports to shareholders exposing any failings of the board


            - company adherence to corporate governance codes (which the government proposes to make mandatory and also apply to private companies)


Directors now need to be extra vigilant regarding their increased exposure to personal liability and should take legal advice to better understand their risk profile in order to avoid any future litigation.