Directors urged to recognise fiduciary duties
Wed, 16 Sep 2009
Company directors should be aware of the greater risks of them being sued in the current economic climate, it has been suggested.
Robin Farquhar, head of specialist lines for Aviva, noted that a director's duty to creditors intensifies in the event of insolvency and with more firms going out of business, the likelihood of facing civil action is increased.
He was speaking after Insolvency Service statistics revealed that there were almost 5,000 compulsory and creditors' voluntary liquidations - a 56 per cent rise on the previous year.
Mr Farquhar explained: "In all types of winding-up, the official receivers can examine the conduct of a firm's past and present directors and officers.
"Insolvency practitioners will often try to recover money for a company's creditors by bringing a claim against a director for either a breach of their duties, or fraudulent or wrongful trading."
He pointed out that a failure to recognise the "ins-and-outs of the law" would act as no defence in such a situation.
"As directors are automatically exposed to unlimited liability, allegations made against them, whether they are guilty or not can be costly," Mr Farquhar stated.
Under the terms of the Companies Act 2006, company directors take greater responsibility for the continued wellbeing of stakeholders such as customers, clients, employees and the environment.
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