Directors’ Duties Survive Administration and Creditors’ Voluntary Liquidation

In his post last year – Stephen Newman of Ramsdens’ Corporate department advised company directors on their duties, as set out in sections 171 to 177 of the Companies Act 2006:-

• to act within their powers;
• to promote the success of the company for the benefit of its members as a whole;
• to exercise independent judgment;
• to exercise reasonable care, skill and diligence;
• to avoid conflicts of interest;
• not to accept benefits from third parties; and
• to declare an interest in a proposed transaction or arrangement.

Now the High Court in Re Systems Building Services Group Ltd has confirmed that these general duties of a director to a company survive the company’s entry into administration and creditors’ voluntary liquidation (CVL).

The Insolvency Act 1986 imposes some additional duties on directors of companies that enter into a formal insolvency process and also limits their managerial powers. A company’s entry into administration or a CVL does not, of itself, remove the directors from office and there is nothing in case law to suggest that a director’s duties cease on a company’s entry into a formal insolvency process. The High Court has said that the company law rules and equitable principles on which sections 171 to 177 are based are sufficiently flexible to extend beyond the company’s entry into a formal insolvency process.

The Court in this case did not have to consider the position on a compulsory liquidation, but the situation is likely to be the same for directors of companies that are the subject of a compulsory liquidation.

If you are a director and have concerns regarding the duties you owe to the company of which you are a director, or a shareholder and are concerned about the directors of the company you hold shares in, please contact us now on 01484 821 500, send us an email or fill in our online enquiry form.