Delegate, don’t abdicate – focus on directors’ duties

Corporate and Commercial / 20 March 2017

If you are a director of a limited liability company, you will be aware that there are serious penalties for breaches of directors’ duties.

The recent case of Dickinson v NAL Realisations (Staffordshire) Ltd [2017] EWHC 28 highlights just how serious the consequences might be. In this case, the High Court decided that:

• a substantial property transaction was made without proper authority – the transaction was voided, the property had to be restored to the company and the director was asked to pay back all rent he had received from the company over a number of years;
• the co-directors were found to be in breach of their directors’ duties for having abdicated their responsibility to a dominant director. Although in this case the court established that their behaviour had not caused any loss to the company, the decision makes it clear that a passive role taken by a director is a breach of duty; and
• a share buyback and the purchase of a subsidiary by a director were considered to be transactions at an undervalue and voided. A debenture granted to a director in order to cover the company’s debt to him was set aside as a result.

Taking the lead from the Dickinson case, directors need to ask themselves:

• Do I have authority to bind the company?
• What are my duties as a company director?
• Do I need to get a valuation to support a transaction between the company and a director?
• What do I need to do to make sure a share buyback is valid?
• When do I need to consider my company’s creditors’ interests alongside the shareholders’ interests?

For answers to these and other questions relating to the proper running of a company tailored to your specific circumstances, please get in touch.