Over the years, we at PCR have investigated several directors for not complying with their directors’ duties in accordance with the Companies Act 2006 and the Insolvency Act 1986.

Quite often, these directors would be reported to the Insolvency Service who would then carry out a thorough examination of any potential breaches by directors or shadow directors. The most common outcome following an investigation is a disqualification for the director, mainly attributed to the fact that they in some form or another failed to adhere to their duties whether knowingly or unknowingly. The fact that the Insolvency Service have released statistics revealing that 70 company directors had received ‘substantial’ bans for misconduct in the UK during 2018/19, did not surprise us in the slightest, as we regularly come across numerous directors who are not fully aware of their duties. In addition to ‘substantial’ bans, there were also a number who have been disqualified for a period of 11 to 15 years, under Section 6 disqualifications (bans for unfit directors of insolvent companies). However, there were hundreds of other bans handed out to directors who failed to comply with their duties as outlined by the Companies Act 2006 or who committed offences under the Insolvency Act 1986. According to the statistics released by the Insolvency Service, the most notable findings of the report were:

  • During 2018/19, there were 1,242 total bans.
  • 70 people received Section 6 disqualifications of between 11 and 15 years.
  • 77% of these substantial disqualifications were voluntary undertakings (entered into without the need for a court hearing) and the majority were 11 (39%) and 12 (33%) year bans. Six people received the maximum 15-year term.
  • 43% of the substantial disqualifications in 2018/19 involved some form of tax misconduct, such as VAT fraud.

In terms of the industries in which directors and their companies were connected with, this varied from construction and real estate, to retail and technology. The most notorious hotspot for handing out substantial bans was revealed to be London at 19%, followed by the West Midlands which accounted for a 10% share.

Although in many instances there has been deliberate director misconduct, there are also many examples where a director has been ignorant of his/her duties or not fully understood the role as a director. So, the most common question we tend to ask directors is:

Are you as a business owner or company director fully aware of your duties and responsibilities as a director?

If the answer is no to the above, then you are at risk of serious breach of the law, and risk running in to profound consequences which could affect both you and your company going forward.

Ignorance is not bliss - know your duties!

The Companies Act 2006 identifies seven fundamental statutory duties that must be complied with. These are:

  • To act within powers.
  • To promote the success of the company.
  • To exercise independent judgement.
  • To exercise reasonable care, skill and diligence.
  • To avoid conflicts of interest.
  • Not to accept benefits from third parties.
  • To declare an interest in a proposed transaction or arrangement.

In summary, you as a director must act in accordance with your company’s constitution and your actions should never favour any shareholder. They must always benefit the members as a whole and there should never be any internal or external pressure to vote in a certain way at a board meeting. Similarly, being incompetent or negligent in any way would be classified as being in breach of your duties. Failure to adhere to these could constitute misfeasance, an offence under the Insolvency Act 1986.

Worrying trend developing?

One area of major concern for Insolvency Practitioners is that there has been a rise in cases where a director has had an indirect or direct conflict of interest with the company. A director’s duty to avoid conflicts of interest is linked to the duty not to make a personal profit from his or her position. It also applies to the duties to act in the interests of the company, to act honestly and responsibly, to act in accordance with the company’s constitution and for the director to exercise an independent judgement. Other concerning practices emanate around directors taking incentives from third parties, which includes bribes but may also include benefits from being a director, shareholder, employee or advisor to a competing company.

Directors need to also declare the nature and extent of any interest they may have in a proposed transaction or arrangement to the board of directors whether or not they are directly or indirectly interested in it.

In summary, if you are found to have committed a breach of duty which costs the company, you could be personally liable. In the most serious of circumstances, some breaches could even carry criminal sanctions, and it is not uncommon to hear of directors going to prison for several years as a result of breach of duties.

If in doubt, seek professional advice

The best advice we could give to directors is to make sure you are fully aware of your duties. Even if you have not been officially appointed at Companies House, but are perceived to be acting as a director, i.e. either acting as a shadow or de facto director, you could still be liable if in breach of directors’ duties and could therefore face the same legal obligations that would be applied to officially appointed directors.

You should have access to all the necessary information regarding your director’s duties in order to assess and make informed decisions without breaching the law. Should you be in any doubt, it is imperative you seek professional advice and not allow yourself to fall foul of company breaches as the consequences could be disastrous.

For more information about the above subject, or for assistance in any insolvency procedures in general, please contact the PCR Head Office on 0208 841 5252 to arrange a FREE initial consultation with one of our Insolvency Practitioners. alternatively you can email us at This email address is being protected from spambots. You need JavaScript enabled to view it. or use our Priority Contact Form, where we will look to get back to you as soon as possible. We treat every enquiry in the strictest of confidence.

Ahmed Ali
Practice Development Executive 

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