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Director’s Duties: What happens when the tide comes in

We are pleased to have Dana Ewans, one of our Corporate Legal Advisors at Jordans Corporate Law, visiting the Jordans Limited blog again to talk about director's duties.

Directors hold a very important role in UK limited companies, as well as other legal entities. Proper management of director’s duties helps ensure the success of the company. So what happens if something goes awry? What happens when the tide comes in?

All company directors are required, by law, to:

  • carry out their duties honestly and responsibly;
  • ensure that they and the company comply with the law and all relevant regulations; and
  • exercise adequate skill and care with proper regard to the interests of the company’s creditors, customers, shareholders, employees and the public (where relevant).

So, when two directors from Global Enduro Ltd failed their company, the consequences were life changing.

Global Enduro Ltd was a Bath based travel company which principally ran motorbike holidays. It also raised money for various charities through an additional fee charged to every participant outside of any sponsorship that they raised. Despite a distinguished list of past clients that included Prince William and Prince Harry, after a negative social media campaign, bookings dropped to such a degree that the directors concluded that the company could no longer trade.

Once it went in to administration in January 2013, a deficiency as regards to creditors of £479,968 was identified and the Insolvency Service launched an investigation. It was found that the directors, Nicholas Capsey and Simon Smith, had failed to ensure that some £207,055 raised for charity was passed on to the intended charities and they had also left around 39 customers inadequately insured. Those customers lost in excess of £104,000 when the company ceased trading.

Both directors have now been disqualified from being directors and cannot be directly or indirectly involved in the promotion, formation or management of any limited company. For Smith, who provided this undertaking early on, the disqualification will last for 8 years from June 2015. For Capsey, who fought disqualification, it will last six years from February 2016.

Should either man breach their undertakings, they will be guilty of a criminal offence and an unlimited fine. They may also incur a custodial sentence for up to two years and become personally liable for the company debts that were incurred during the breach.

What is unfit conduct?

Outside of committing a criminal offence, directors may also be disqualified for unfit conduct. This includes, but is not limited to:

  • Deliberately depriving creditors of assets
  • Fraudulent behaviour
  • Failure to comply with regulatory requirements
  • Failure to submit tax returns or paying tax owed by the company
  • Failure to keep and deliver accounting records, along with failure to prepare and file accounts

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