Legal Advice & Support For MD's and Business Owners

Steering your ship requires a proficient understanding in most matters and in accepting the role of MD you are agreeing to act honestly and promote the success of the business in a manner which benefits your stakeholders.

To quote The Companies Act 2006, a director “must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole”

Your directorial obligations are broad and must cover all areas of the business, such as:

  • Banking and finance
  • Insolvency
  • Restructuring
  • Compliance
  • Disputes
  • Corporate matters
  • Mergers and acquisitions

You also have responsibilities to your employees and any trading partners, and let’s not forget the official bodies such as HMRC and Companies House.

In short, you are agreeing to act in the best interests of the company (often referred to as the s172 Duty) and in exercising your decisions, you are expected to consider the following:

  • Likely consequences of any decision in the long term
  • Interests of the company’s employees
  • Company relationships with suppliers and customers
  • Any impact of the company’s operations on the community and environment
  • Maintaining a reputation for high standards of business conduct
  • The need to act fairly between members of the company

The points above are seen as a ‘single duty’ and as MD you must use your own business judgment in all good faith, to decide what is most likely to promote the success of the company.

Note: if a company is operated on a ‘not for the benefit of its members’ basis (for example a charity or non-profit’) then the directors must act in a way that is most likely to achieve the stated purpose.

You are also expected to demonstrate the care and skill expected from any person with the knowledge and experience that they possess operating in that position.

Sometimes the position of MD can be a lonely one and having a team around you with armed with specific advice can be invaluable.

Lupton Fawcett can be your trusted advisor. To discuss any issues you have, please call our expert team on 0330 404 6412.

Avoiding conflicts of interest.

A key area to bear in mind is ‘conflict of interest’, whether it be personal or within the business.

This duty in incumbent upon you, irrespective of whether it’s taken advantage of or if any gain is made by it and applies in particular to the exploitation of any property, information or opportunity.

Mitigating circumstance might be:

  • during a proper analysis of the circumstances, consider whether there will actually be a conflict or potential for conflict with the interests of the company
  • the agreement has been pre-authorised by other directors within your company
  • they apply to persons connected to you, such as a spouse, partner, parent, child or other close family members

Always seek approval;

If you think there may be a conflict in your actions, or you are thinking of accepting another directorial or advisory position in another company, you should first seek documented approval from the directors or stakeholders in your company.

Check the articles of association;

There may well be provision in the articles that address conflicts including how you are expected to behave in such circumstances.

You must pay particular attention to:

  • protecting confidential information you are party to in your existing position
  • inclusion on board meetings
  • any financial benefits received

Self-regulation of your actions;

In accordance with your fiduciary duties, you will be expected to behave in a manner appropriate to your position.

Lupton Fawcett can advise you on conflict of interest, please call us on 0330 404 6412 to discuss your questions.

Not accept benefits from third parties

In the old days these were called bribes and usually consisted of a financial incentive in exchange for beneficial treatment. More recently the scope has broadened to various obvious or non-obvious benefits, such as a nice holiday in Colorado paid for by a keen supplier and not declared by a director.

In any event, be careful not to accept anything which may be considered ‘a benefit’ from a third party given to you because of your influential position.

If such a benefit has been received, you should declare this immediately to your fellow directors. You may be asked to reimburse the benefit and cease any further incentive-based relationship with the donor.

Declaration of interests

If you are in any way, directly or indirectly, interested in a transaction or arrangement within the company in which you operate, you must declare this to your fellow directors and inform them of both:

  • the extent of the interest
  • the nature of the interest

As discussed above in the conflicts of interest you must declare any proposed relationships or transactions, before they are entered in to. If the relationship has already been entered in to, then you must inform your fellow directors and any stakeholder parties as soon as is reasonably practical.

Potential Penalties

Your position as a Managing Director holds much responsibility to a number of interested parties and as such you must execute your responsibilities with care and diligence.

However, you face serious penalties if you abuse those powers or use them irresponsibly.

You should be aware:

  • Directors can be jointly and severally liable if acting collectively in breaching their responsibilities
  • Even in a limited liability company, you might be held personally liable for losses
  • You could be disqualified from acting as a director for some types of conduct

Wrongful Trading

Wrongful or fraudulent trading are serious offences and you may be personally liable to make good any losses arising from such actions. Some actions could result in criminal convictions.

Lupton Fawcett Can Help

If you believe you or a member of your senior team may be in breach of any directorial responsibilities, or you would simply like to seek clarity on any circumstances regarding your fiduciary duties, then please get in touch on 0330 404 6412.

We can advise you or offer in-house training for your senior team.

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