2. Why Directors’ Duties are Relevant
to Corporate Insolvency
When a company is insolvent, the powers of those involved with the com-
pany can be severely restricted, meaning it could be difficult, if not impos-
sible, to ratify any director’s actions that have breached the Directors’
Duties as codified in Part 10 of Chapter 2 of the Companies Act 2006. If
any of the company’s directors have breached their duties to the com-
pany, the liquidator can bring proceedings on behalf of the company,
against those director(s) who committed the breach.
Duties vary depending on whether a director is an executive director or a
non-executive director. To qualify as an executive director, a director must
not only be a member of the board of the company, but also be a full time
employee engaged in the day-to-day management of the company. An
executive director has two specific sets of duties that stem from these two
conditions. Thus an executive director has a set of duties relating to their
3. status as a director, and a set of duties relating to their status as a full time
employee, evidenced by a contract within which the employee duties are
stated.
A non-executive director only owes the company the set of duties associ-
ated with their role as a director on the board.
Both executive and non-executive directors owe the same standard:
non-executive directors do not have a lesser duty to the company than
an executive director because they only fulfil a part-time role on the
board. They are still required to have sufficient knowledge to help guide
and monitor company management.
More about Insolvency and Liquidation: http://www.liquidation.co.uk
