As a director, there is often considerable pressure to make decisions in the best interests of the company, its shareholders, and its employees. At the same time, directors have to comply with a strict set of duties under the Companies Act 2006 (CA 2006). This can lead to the potential for allegations against directors of wrong-doing, even where a genuine error has been made. It is commonly believed that any liability arising from the role of Company director ceases when employment comes to an end, however, this is not always the case. In this article, we will take a look at whether a former director is liable for a breach of duties in a previous role and what they can do to protect themselves financially, legally, and reputationally.
How long do a director’s duties last?
The majority of legal duties held by a director come to an end when they leave their position, but this does not apply to some of their fiduciary duties. Fiduciary duties include the duty of confidentiality, duty of no conflict, and duty not to profit from the position.
Section 170 of the CA 2006 states that:
“a person who ceases to be a director continues to be subject—
- to the duty in section 175 (duty to avoid conflicts of interest) as regards the exploitation of any property, information or opportunity of which he became aware at a time when he was a director, and
- to the duty in section 176 (duty not to accept benefits from third parties) as regards things done or omitted by him before he ceased to be a director”.
It is also important to note that the case law established by the High Court in Burnell v Trans-Tag Ltd [2021] EWHC 1457 (Ch) means that it is implied that the duty to avoid conflicts of interest applies even for acts that take place after a director leave their role.
Arena Television sues former directors for breach of fiduciary duty
A notable and ongoing case of alleged breaches of fiduciary duty concerns that of the former director of Arena Television (one of the largest independent outside broadcasters in the UK), in what has been described as “potentially the biggest fraud of this kind the UK has ever seen”. Arena Television fell into administration in November 2021 with debts of £300m. The administrators, Kroll, have filed a claim in the High Court against Arena’s former owner and Managing Director, citing allegations of fraud.
The fraud involves loans of £300m from asset-based lenders, including HSBC, Close Brothers and Shawbrook. The loans were based on the use of some of the expensive equipment owned by Arena, which was used as security. The issue was that when lenders sought to later verify serial numbers for some of the equipment used as security, the suppliers confirmed they were not valid. This claim may fall into the category of a breach of duty to avoid conflicts of interest, given the possible exploitation of property, information, or opportunity.
The case has yet to be heard by the High Court, but this will be keenly observed given the alleged scale of wrong-doing.
What can I do if I am accused of breaching director’s duties in a previous role?
There are several steps that a former director and company can take to seek protection from claims of wrong-doing, as follows:
Engage the services of a legal representative specialising in business fraud
In cases of allegations against directors for breaches of directors duties and business fraud, especially where claims have already been filed with the court, it is essential to act quickly and engage legal expertise from a business fraud defence Solicitor. They will listen to the details of the case, explain your legal position, and put in place a plan of action. They will quickly establish if:
- you owed and still owe a duty as a former director
- whether there is sufficient evidence to back up a claim of wrong-doing
- the type of claim being brought against you
- if there is potential to resolve the matter outside of court (by using Alternative Dispute Resolution methods), and;
- the likely remedies.
Review the circumstances of the alleged wrong-doing
Where possible, gather all of the information, facts, details of witnesses, and correspondence that you can regarding what happened in your role as a director where the alleged wrong-doing occurred. This will be essential in building a robust defence case if this is required.
Check if the company has a D&O policy to cover breaches of director’s duties
It is recommended to check if there is any Directors & Officers (D&O) insurance in place. Companies often take out D&O insurance as these cover liabilities and breaches by past, future, and future directors. Whether wrong-doing occurred or not, it is reassuring to know that most D&O insurance policies will repay any legal fees incurred. It will also ensure that where a claim is successful, both the former director and the company are afforded financial protection.
D&O policies will not necessarily cover all incidents of director wrong-doing, however, a Solicitor specialising in this area of law will be able to review the policy and confirm if this is the case.
Final words
By gathering as much evidence to back up your version of events, seeking the assistance of a business fraud defence Solicitor, and claiming under a D&O or another form of liability insurance, you can protect yourself from the legal, financial, and reputational impact of any claim against you for alleged wrong-doing in a previous director position.
Reeds Solicitors is a leading business fraud defence, family law, prison law, and mental health law firm in England and Wales. You can reach us through our contact page here.
