Delegate, don’t abdicate – focus on directors’ duties
If you are a director of a limited liability company, you will be aware that there are serious penalties for breaches of directors’ duties.
The recent case of Dickinson v NAL Realisations (Staffordshire) Ltd  EWHC 28 highlights just how serious the consequences might be. In this case, the High Court decided that:
- a substantial property transaction was made without proper authority – the transaction was voided, the property had to be restored to the company and the director was asked to pay back all rent he had received from the company over a number of years;
- the co-directors were found to be in breach of their directors’ duties for having abdicated their responsibility to a dominant director. Although in this case the court established that their behaviour had not caused any loss to the company, the decision makes it clear that a passive role taken by a director is a breach of duty; and
- a share buyback and the purchase of a subsidiary by a director were considered to be transactions at an undervalue and voided. A debenture granted to a director in order to cover the company’s debt to him was set aside as a result.
Taking the lead from the Dickinson case, directors need to ask themselves:
- Do I have authority to bind the company?
- What are my duties as a company director?
- Do I need to get a valuation to support a transaction between the company and a director?
- What do I need to do to make sure a share buyback is valid?
- When do I need to consider my company’s creditors’ interests alongside the shareholders’ interests?
For answers to these and other questions relating to the proper running of a company tailored to your specific circumstances, please get in touch.
This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. For advice, get in touch with your usual Greenwoods GRM contact or scroll down to complete our enquiry form.