Page 47 - Profmark_2024_Directors Guide

LIABILITY OF DIRECTORS

Generally, the directors are not personally liable for the debts of the company.
In a personal liability company (incorporated), the directors and past directors are
jointly and severally liable together with the company for the debts and liabilities of the
company that were contracted during their respective terms of office.
Directors may be exposed to personal liability in the event that they do not discharge
their duties properly.
When a company becomes financially distressed or is trading in insolvent circumstances,
it is the duty of directors to take legal and financial advice and if necessary place their
company into either business rescue proceedings or into liquidation, or to cease trading.
Should the company continue to incur debts, where in the opinion of a reasonable
businessman, there would be no reasonable prospect of creditors receiving payment
when due, it could be inferred that the company is being carried on recklessly or
negligently, and the provisions of Section 22 may come into play.
The Act sets out the circumstances in which a director can be held liable for loss,
damages or costs of the company, incur civil liability to shareholders and third parties
and/or criminal sanctions.
Criminal Liability
The Act aims to de-criminalise sanctions where possible and rather to enforce company
law administratively via appropriate bodies.
There are very few remaining offences – only those arising out of a refusal to respond to a
summons, to give evidence and perjury.
In addition, in order to improve corporate accountability, the Act (Section 216) states
that it will be an offence, punishable by a fine or up to ten year’s imprisonment (or both)
for a director who:
■ Commits a breach of confidence
■ Makes false statements, or participates in reckless conduct and non-compliance
■ Is party to the falsification of any accounting records of a company
■ Knowingly, and with a fraudulent purpose provides false or misleading information in
any circumstances required by the Act
■ Knowingly is party to an act or omission by a company calculated to defraud a
creditor or employee of the company, or a holder of the company’s securities or with
another fraudulent purpose

45