Issue link: https://htpgraphics.uberflip.com/i/246991
Shareholders and Directors Section 4 Wrongful Trading The duties on a director are particularly important in situations relating to the potential insolvency of a company (ie where a company has to cease trading because it can no longer pay its debts). A director must act if he or she knows or ought to conclude, that there is no reasonable prospect of the company avoiding insolvent liquidation. This takes account of the director's general knowledge, skill and experience. The director must advise the board of the insolvency and ensure that every step is taken to minimise the loss to creditors. If the director fails to do so he or she may have to pay personally into the pool of assets to be paid out to creditors of the company. Penalties A director can, therefore, be liable to the company as a result of his/her wrongdoing. These acts may be punishable by financial penalties payable to either the company or third parties and, in some cases, criminal penalties. In addition, where the company is insolvent, a director can be disqualified from acting as a director for a period of time. A court may relieve a director, wholly or partly, from liability to the company (but not to third parties) if it appears to the court that the director has acted honestly and reasonably and that, having regard to all the circumstances of the case, the director ought fairly to be excused. A director may, for example, be excused for relying on advice which turns out to be wrong. A director is not excused where the breach would have been avoided had legal or other professional advice been sought. The duties, expertise and responsibilities of a director are therefore clearly very serious (as compared eg to a shareholder) and should not be treated lightly. It is more than a title. 25