News & Insights

Due to the current restrictions of Covid-19, many directors have been under immense pressure to ensure the survival of their business, however, despite the current challenges this pandemic brings, directors remain obliged to act in accordance with their statutory duties.

Following, we take a look at directors’ legal obligations during these difficult times and highlight some key areas that you may want to consider or implement, to ensure you continue to act in line with the company’s and its members’ best interests.

Financial support

A thorough review and analysis of the facilities available to the company is essential.

For example, the government backed lending should be a major consideration, but may not be available to your business, or indeed be the best solution.  Many banks are trying to assist their customers and you may find that your current overdraft facility or that of another bank is actually more affordable in the long-term.

Research, compare and keep records – directors are obliged to apply a high standard of care and diligence and it is important that they can demonstrate the thought process behind any decision. Transparency between directors and good communication could be key factors, particularly when decision makers are perhaps now isolated from each other.

Operational decisions

On what basis have the directors established what’s essential for the business to continue running and produce sufficient income to pay its debts, and what will be suspended or cut?

Is this likely to change and is it being kept under review?

Are minutes of board meetings being produced and kept as required under the Companies Act 2006? It is important that every course of action is appropriate for the company.

Welfare of employees

Whilst keeping employees working will be key for the continuation of some businesses, directors must consider their overriding responsibility for ensuring the health, safety and welfare at work of employees.

If a shared work place is increasing their likelihood of contracting Covid-19, what is being done to minimise the risk? Are all reasonable adjustments and efforts being made and alternatives being offered?

Continuing to trade

For as long as the company is comfortably able to trade and pay its debts as they fall due, directors must act in the interests of the company’s shareholders as a whole (not individual shareholders). If, however, the company is on the edge of becoming insolvent, the directors must instead act in the best interests of the company’s creditors. If the directors wish to avoid potential personal liability for the company’s debts, advice should be sought quickly if there is any doubt.

While the period over which businesses will be affected by Covid-19 is not determinable, it remains crucial for all relevant information to be considered in a timely manner and for directors to demonstrate that they have, and continue to make informed decisions. Advice should be sought both internally and externally where appropriate, and every step taken to justify and evidence each course of action.

Laceys are continuing to advise businesses and their owners in a variety of sectors during these more difficult times. If you would like to discuss your Director Duties in further detail with us, please contact the head of the Corporate Commercial team, Sam Freeman, either by by email or telephone 01202 205024, and he will be happy to help.