Coronavirus (COVID-19) and the importance of directors’ duties | Corporate Law

During this time of commercial unrest it is paramount that company directors have at the forefront of their minds their statutory duties when making difficult decisions about the future of their businesses.

Directors must remember that they remain subject to the statutory duties even during these difficult times which are to act in in good faith and in the interests of the company. Should the fortunes of the company worsen to the point of potential insolvency the duty is then owed to the creditors of the company.

In the event that a director breaches their statutory duties in an insolvency situation they could potentially be liable for wrongful trading and could also be made personally liable for the losses of a company where they continue to trade in circumstances where there was no realistic prospect of avoiding a formal insolvency event.

However, the government has introduced new measures to improve the insolvency system to help businesses hit by the coronavirus crisis. The new rules will allow companies undergoing restructuring to continue access to supplies and raw materials. There will be a temporary suspension of wrongful trading provisions for company directors to remove the threat of personal liability during the pandemic, which will apply retrospectively from March 1.

Directors must, however, remain aware that all of the other checks and balances that help to ensure directors fulfil their duties properly will remain in force. We would therefore advise that directors act prudently by keeping in regular contact with their company accountant and remain on top of their financial information. For example, whilst there are support schemes available directors will need to assess whether their company can service the increase in debt in the future.

Companies currently find themselves in a fast changing environment and therefore board directors will also need to remain in regular contact with each other. It is essential that they document all board minutes so that their decisions are transparent and the impact of those decisions is shown to be carefully considered in light of their directors’ duties.

Finally, we strongly advise that directors remain in contact with their professional legal advisors should they have any concerns or require assistance. For further information contact Philip Chapman, Corporate Director, Thursfields Solicitors at pchapman@thursfields.co.uk or call 0121 227 3879.