COMMERCIAL LAW

Commercial Law

Commercial Law

Despite being the managers of a company, directors have a separate legal personality from the company's they manage. However, a director can still be liable for the actions of himself, and of the company. To this end, the director has a range of duties, and failure to comply with these can result in liability.

These duties are owed to the shareholders as a whole, though minority shareholders are also protected by the law, with Stein v Blake perhaps the most recent clarification.

Traditionally, capital holders have been owed these duties. However, s.309 of the Companies Act 1985 extended this view, meaning directors are now obliged to regard the interest of employees.

The case of Liquidator of West Mercia Safetywear v Dodd clarifies that a duty is owed to creditors by a director of an insolvent company, and s214 of the Insolvency Act 1986 states that steps must be taken to minimise loss where insolvency is reasonably expected.



There are a plethora of other duties owed by directors - the duty of skill and care, with Re City Equitable Fire and Insurance Co the leading case, with this standard illustrated perhaps most eloquently in Laguna, with MR Lindley stating “If they (directors) act with such care as is to be reasonably expected of them…… they discharge their duty to the firm”.

The IA'86 sets out the modern standard regarding the duty of skill and care of directors - confirmed in Re D'Jan of London, and the statute book is relatively burgeoning with Acts bestowing responsibilities and potential liability on directors.

Directors also owe fiduciary duties, governed by s317 CA'85, requiring directors to disclose any personal interest which could conflict with companies interest. Other duties conferred on directors include the fair issue of shares, among others. Directors can also be delictually liable, most commonly in instances of fraud and negligent misstatement and they have a degree of contractual liability, particularly if they breach their authority. The Financial Services Act 1986, along with the CA'85, also imposes some statutory liability on directors.

A company can be wound up in two distinct circumstances - by virtue of a voluntary winding up order, requested by either members of creditors, or a compulsorily, at the behest of the Courts, who can make this decision on a number of grounds, though many people can present a petition for winding up. The difference between the two is that a members winding up order has a statutory declaration of solvency from the directors, otherwise the winding-up proceeds as a creditors winding-up order. These two forms of winding up have mainly clerical variations. Companies can also voluntarily enter liquidation.

The liquidator has many powers, including paying a creditor in full - with the Enterprise Act 2002 rather controversially stripping the Crown of its 'preferential creditor' status.

If the company's liquidator, appointed in this instance by the creditors (as it was Ben, a creditor, who applied for the winding up order), finds that the company has continued trading when it is ...