HEAVY PENALTIES FOR DIRECTORS WHO IGNORE THE LAW

June 2009

With many businesses facing difficult times as a result of the credit crunch, directors should be more aware than ever of changes in the law regarding their responsibilities, according to a leading lawyer.

Lucy Gannon, a member of Maxwell MacLaurin’s Business Division, warns that directors could unwittingly face heavy fines or imprisonment if they do not follow the letter of the law.

For example if a company continues to trade and incur credit despite knowing it is likely to become insolvent in the near future, the company directors could be found guilty of wrongful trading.

A director who is found guilty of wrongful trading could face disqualification as a director for up to 15 years, receive a fine and or/imprisonment.

Lucy Gannon said: “A director found guilty of wrongful trading may incur personal liability – regardless of whether or not the company is limited – for the debt racked up by the company after the point he knew or ought to have known there was no prospect of avoiding insolvent liquidation.

“Degrees of responsibility vary, for example a qualified finance director who has regular access to financial figures may in these circumstances have a higher duty of care than say a creative or HR director.

“However regardless of your role, if you are concerned about the way the company is trading, don’t resign and hope for the best. Actions of past directors will be scrutinised if the company becomes insolvent later.”

She advises that company directors who are worried about the future of the business and actions of other directors, should be proactive and regularly monitor accounts. Any concerns about solvency should be raised at board level and minuted.

They could also consider taking directors’ and officers’ insurance. D&O insurance is designed to protect directors against claims made in respect of discharge of their duties and may provide protection against a wrongful trading action.

With offices in Glasgow and Edinburgh, Maxwell MacLaurin offers a full range of legal services with expertise in private client, family and child law, business law and property.