Registered Companies: Directors Responsiblilities, Liabilities & Risks

As part of our Consumer Awareness series, we published an article on Tuesday titled Registered Companies: Genuine or Not?”. This explored how simple and cheap it is to set up and register a “legitimate” UK Limited Company, it also showed a very serious loophole on how companies are named, allowing deceit to be present from the start. Today we explore a little further the responsibilities and liabilities of the appointed company officers.

The idea came from an old episode of Only Fools and Horses which was shown just after the original article was published. In this episode, Del Boy has just been declared bankrupt, he is now fretting over the “company” Trotters Independent Traders, and he is now barred from being a director. Well, no problem for Del Boy is it, he has his “Plonker” brother Rodney become director, and he remains in charge.

The classic “brains & the stooge” scenario, but does Rodney know what his responsibilities are and for that matter his liabilities and risks?

Firstly there are the Responsibilities, in a nutshell, they are described as “Fiduciary Duty” towards the company, a general definition is:

Fiduciary duties are owed when someone “has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence”.

The definition below is from the following link.

To manage the corporation’s assets in its own interests; To avoid conflicts of interest with the corporation (or disclose them in situations where the law considers disclosure an adequate response)’s%20assets,disclosure%20an%20adequate%20response)%3B

The article is regarding a true case of “Fiduciary Duty”, in this case, it was the sharing of sensitive company information, a clear breach of loyalty. But what about when it comes to the possibility of fraudulent activity being perpetrated by the company against consumers?

This also appears to be a grey area, there are plenty of links to the “Role of a Director”, but nothing specific apart from 

Promote the Company’s Success

Although each company’s success is relative, it’s agreeable that a company director will need to actively exercise the dissemination of the company’s values and success to garner longevity and company scalability. In this respect, the legislation states that a director must have regard to, but not limited to, the following:

  • The possible consequences of any decision in the long term.
  • The interests of the company’s employees.
  • The implementation of the company’s business relationships with suppliers, customers and others.
  • The company’s impact on environmental and community operations.
  • The commitment of ensuring the company maintains a reputation for high standards of business conduct.
  • The obligation to act fairly and justly between company members.

So Responsibilities can be regarded as a very grey area, so what about the risks to our Rodney now that he has been appointed director of “Trotters Independent Trading”.

Again it was not easy to find detailed information, although we did come across the following link, and it explains this subject quite clearly. This is the list of risks involved, explanations for each point can be found at the link.

The following are some of the most important risks for directors:

  • Health and Safety.
  • Bribery Act.
  • Insolvency.
  • Section 214 – Wrongful trading.
  • Section 213 – Fraudulent trading.
  • Section 212 – Recovery for misfeasance.
  • Sections 238 – Transactions at an undervalue.
  • Section 239 – Voidable Preferences.

From the above, it is clear Directors could be liable for prosecution under various laws, the ones that interest us are “Wrongful Trading & Fraudulent Trading”.

These are the main complaints of “scams” perpetrated by some very dubious companies, with many of these having “Rodney’s” to front the company. So can these Directors & Company Officers be prosecuted for a criminal offence?

As always with the law, it is open to debate, it is all about “establishing personal liability”, below is the best explanation found on the website for Draycott Browne Solicitors.

A director, manager, secretary or other officer of the company can be prosecuted for a criminal offence if personal liability can be established. This is to ensure the accountability of those in senior positions at companies engaging in criminal conduct.

In order for personal criminal liability to be established it must be shown that there was either ‘consent’ or ‘connivance’ on the part of the director in relation to the offence committed by the company.

In the event of a breach of the law, an offence is committed by every officer of the company who is in default.

According to section 1121(3) of the Companies Act 2006, a director or officer is in default if he or she “authorises or permits, participates in, or fails to take all reasonable steps to prevent” the offence being committed.

More grey areas, although it is clear that yes they could be prosecuted, the question is, how many are?

Another area which impacts whether the director or officer can be prosecuted is jurisdiction and when a director can be personally liable in the UK. According to our research, this is fairly clear.

“To be held liable, the director must have a close connection to the UK e.g. be a British citizen, an individual ordinarily resident in the UK or a British Overseas citizen. A director found guilty of any of these offences could face a maximum penalty of 10 years imprisonment and/or an unlimited fine.”

Going by this definition, our Chinese friends from the first article would not be held liable, as for any criminal prosecution, the chances are they will never happen.

So we do have to ask ourselves the question, do the “Rodney’s” who are fronting the companies know the risks and liabilities and carry on out of sheer greed or are they just “Plonkers” without a clue who end up taking the long term fall?

We leave you to make up your mind.

Tomorrow we end the week with “ARDA’s Anti-Consumer Legislation”, by our new contributor Larry Lobbyist, a Westgate Resorts Timeshare Buyer and edited by our very own Irene Parker. This is part of our “Smoke & Mirrors” and “Consumer Awareness” articles, so it will be full of very useful information to keep you informed.


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