Following the introduction of the Companies Act 2006, directors have specific duties which they must comply with in connection with the day to day running of their businesses. Breaching these duties could potentially leave a director personally liable to the company, its shareholders and possibly facing dismissal. It is therefore crucial that directors recognise where their statutory responsibilities lie, and it is not always immediately obvious.
The seven duties imposed on directors are as follows:
1. Acting within their powers;
2. Promoting the success of the company;
3. Exercising independent judgment;
4. Exercising reasonable care, skill and diligence;
5. Avoiding conflicts of interest;
6. Not to accept benefits from third parties; and
7. Declaring any interest they might have in a proposed transaction or arrangement.
Perhaps the most important of these are the duties to promote the success of the company and the exercise of reasonable care, skill and diligence.
These core principles should underpin every decision directors take, every contract they enter and every procedure they put in place – none more so than the company’s Terms and Conditions of Sale and / or Purchase (T&Cs). Directors must ensure that the T&Cs are a) in the best possible shape to protect the company’s interests and b) incorporated into the company’s contracts with both customers and suppliers. This is fundamental and neglecting to do it could land the directors in trouble! For example, if the company ever went into insolvent liquidation, a director could be found guilty of ‘wrongful trading’ unless they can show that they have taken all such steps, as are reasonable in the particular circumstances, to avoid liquidation – this includes putting in place commercially sensible T&Cs.
It is crucial for directors to seek professional legal advice in relation to their T&Cs, to ensure that they are protecting their personal assets and avoiding any scrutiny from an insolvency practitioner should the issue of ‘wrongful trading’ arise, or from the court should they find themselves on the wrong end of a claim for breach of duty.
For further advice on your business’s T&Cs, or any other commercial matters, please contact Kaye Whitby or Ben Davies in our Corporate team on 0161 475 1216.