The 2006 UK Companies Act, which sets out the legal duties and responsibilities of Company Directors, is one of the longest pieces of legislation ever written. Falling foul of the law can have serious consequences for directors including personal and potential criminal liability yet many directors, particularly NEDs, take on their roles in blissful ignorance of the law. Before becoming a company director you should have a basic understanding of your legal duties and responsibilities and you should check for indemnity provisions in the company articles of association and your Directors’ and Officers’ (D&O) insurance arrangements. Once in post, here are 10 things you can do to avoid the potential pitfalls:

1. 10 things Non-Executive Directors
can do to satisfy their legal
responsibilities

2. The 2006 UK Companies Act, which sets out
the legal duties and responsibilities of
Company Directors, is one of the longest
pieces of legislation ever written. Falling foul
of the law can have serious consequences for
directors including personal and potential
criminal liability yet many directors,
particularly NEDs, take on their roles in
blissful ignorance of the law.
Before becoming a company director you
should have a basic understanding of your
legal duties and responsibilities and you should
check for indemnity provisions in the company
articles of association and your Directors’ and
Officers’ (D&O) insurance arrangements.
Once in post, here are 10 things you can do to avoid the potential pitfalls:

3. Remember that compliance is the responsibility of all
directors – not just the Company Secretary, Chair, CEO or
other Executives.1
Whilst individual directors may have particular
responsibility for the day-to-day mechanics of
compliance, it is the board’s responsibility,
collectively, to ensure that the statutory
requirements are met.
Filing annual returns and accounts may be the
job of the Finance Director or Company
Secretary but persistent failure to file on time
can lead to penalties being imposed on all the
other directors, including the NEDs.
Make sure that the board receives regular assurance on compliance matters and
do not assume it is being taken care of by the other directors.

4. Check your status as a Company Director
2
Many Non-Executives start working with
boards as advisors or consultants before they
are formally appointed as NEDs and assume
that as they are not registered as a company
director at Companies House then the law
does not apply to them. If you actively take
part in board meetings or hold yourself out to
be a director then you run the risk of being
classified as a “shadow’ or “de facto’ director
and thus share the same legal duties,
responsibilities and liabilities as the other
board members
Make sure that your legal status and that of the other board attenders is clear.

5. Keep accurate records of board meetings.
3
Every board meeting agenda should contain
an item which gives directors the
opportunity to review the minutes of the
previous meeting. Make sure that you use
this opportunity to make any corrections that
are required to ensure that the minutes
accurately record the discussions that took
place together with any resolutions and
actions. Pay particular attention to items
where your personal contribution is
mentioned.
Keep your own copy of board minutes for at least six years after you have ceased
to be a member of the board.

6. Be aware of key statutory filing requirements.
4
Make sure that you know when key
documents such as the annual accounts and
annual returns need to be filed. Also be
aware of other matters such as certain
shareholders’ resolutions, allotments of
shares and the appointment of new
directors, which need to be notified to
Companies House within specified time
limits.
You can use the Companies House web-check facility to check that the business
is up to date with its filing requirements.

7. Familiarise yourself with the Articles of Association and
other constitutional documents.
5One of the prime duties of a company
director, as set out in the 2006 Companies
Act, is to ‘act within powers’. These powers
can be found in the company’s Articles of
Association together with any shareholder
agreements or contracts which form the
constitutional documents for the business.
As soon as you are appointed to a board you
should read these documents and familiarise
yourself with the specific requirements for
the calling of a shareholders’ meeting or
provisions relating to directors’ meetings and
remuneration.
The board should review the Articles on a regular basis to ensure that they are
still relevant to the operation of the business

8. Take all reasonable steps to avoid conflicts of interest.
6‘Declaration of interest’ should be a standing agenda item for a
board meeting, giving directors the opportunity to declare a
personal interest in an item to be discussed at that meeting.
There should also be a register of interests, reviewed annually,
which records the external interests of board members and
their immediate families. These are both particularly
important for NEDs who are more likely to have external
interests than the executives. However, simply declaring an
interest is not necessarily all that a director has to do to avoid
a conflict of interest. It may be appropriate to physically absent
yourself from the board meeting for the duration of the
discussion of a matter where you are conflicted and have this
absence clearly recorded in the minutes.
In some cases directors resign their posts and re-join the board once a conflicted
matter has been resolved.

9. Avoid accepting benefits from third parties.
7
Taking a bribe from a potential supplier is
clearly wrong but what about corporate
hospitality? As with conflicts of interest,
many boards keep a register to record gifts or
hospitality given to directors or senior
managers, usually above a set amount. They
also have specific policies and procedures
that directors should adhere to.
The best advice though is not to accept anything, even a sandwich or cup of
coffee if it could be interpreted as an inducement by a third party.

10. Watch out for insolvency.
8After failing to file your statutory documents on time,
the next most heinous crime a director can commit is
‘trading whilst insolvent’. A company is insolvent if it
cannot pay its debts when they are due to be paid.
Many businesses, especially start-ups or those with
high growth can sail near to or actually become
technically insolvent. They can then only continue to
trade if they have a reasonable belief that they can
trade out of their insolvent position. It is vital
therefore, for the board to seek external advice from
an insolvency practitioner as soon as possible in order
that there is independent confirmation of the
reasonableness of their position.
Failure to act promptly and responsibly can leave directors open to unlimited
personal liabilities

11. Speak out – do not ignore warning signs
9
If you have concerns about any company
decisions, or the content of any
documents such as accounts or board
papers, make your views known. It is your
duty to act with reasonable skill, care and
diligence. The 2006 Companies Act does
not differentiate between executive and
non-executive directors.
As a board member you are jointly and severally liable for all board decisions and
can become personally liable if the board knowingly does something illegal

12. Get trained to become a company director.
10
A Non-Executive Director appointment can
be a very rewarding career move but it is not
something that should be entered into
lightly. In addition to performing due
diligence on the business, a prospective NED
should fully understand the duties and
responsibilities of a company director.
Excellencia provide a 1-day course for prospective NEDs (How to become a Non-
Executive Director) for £330 (ex VAT)
How to become a
Non-Executive
Director

13. Join NEDworks Today
Join NEDworks today as a Tier 1 Member for only
£30.00 per annum (ex VAT) to get:
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• discounts off all Executive Transitions’ events
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