Companies in crisis: What duties do I owe as a company director and do my duties change if the company becomes insolvent?

Whether its general duties detailed in the Companies Act 2006 or more specific duties included in your company’s articles of association, it’s vital that as company director you understand your responsibilities. If your company does become insolvent, there will be a shift in your duties.

In the seventh instalment of our companies in crisis Q&A series, we talk you through company director duties and how they change if the company becomes insolvent.

Key points

As a company director you owe general duties under the Companies Act 2006 to:

• act within your powers in accordance with the company’s constitution, and only exercise these powers when they are granted
• promote the success of the company
• exercise independent judgment without subordinating your powers to others
• exercise reasonable care, skill and diligence
• avoid situations where you have or can have, a direct or indirect interest that conflicts with the interests of the company
• not accept benefits from third parties
• declare any direct or indirect interest in a proposed transaction or arrangement with the company to the other directors.

Your company’s articles of association can also include further duties that you need to adhere to as well as prohibit or limit powers.

The duties you owe are to the company, not shareholders or creditors. However, if the company becomes solvent the duty to the company is to act in the best interests of the shareholders so your duty shifts to acting in the best interests of the creditors.

If you think your company may become insolvent, you should always seek immediate professional advice. Our insolvency experts can talk you through your options.

• Part one: I am concerned for the future of my company because of Covid-19. What steps should I take?
• Part two: I have signed personal guarantees to my company’s lenders but what happens if the company then becomes insolvent?
• Part three: How can I tell if my company is insolvent? 
• Part four: My company is receiving pressure from creditors but it can’t afford to pay what it owes. I think that my company is now insolvent, what options do I have?
• Part five: Should my company continue to trade if I know that it has no way of paying all its debts?
• Part six: If my company is placed into an insolvency process, how will this affect me?
• Part seven: What duties do I owe as a company director and do my duties change if the company becomes insolvent?
• Part eight: My company is due monies from several customers. What steps can I take?