The liquidators brought an action through the courts against the directors, claiming a breach of their duties under the Companies Act 1993.
In August 2023, the Supreme Court, our highest court, agreed, and held that director duties were breached. Specifically, the directors breached their duty not to trade in a way that could cause a substantial risk of serious loss to the company’s creditors. The directors also breached their duty not to agree to the company incurring an obligation, when they did not have reasonable grounds at that time, to believe the company would be able to perform those obligations.
Directors have duties under the Companies Act 1993 and can be found personally liable for breaches of these. As well as the duties breached by the Mainzeal directors, directors should act in good faith and in the best interests of the company, act for proper purpose, and exercise care, diligence and skill. The duties are owed to the company, and if a company becomes insolvent the liquidators can claim against the directors on behalf of the company's creditors.
What can we learn from Mainzeal? Directors should keep monitoring and understanding the company’s performance. In difficult or complex situations, they should get expert advice and act on it. They should get advice on what Directors & Officers insurance cover is available, which is limited, and obtain this. Ultimately, if they do not agree with the other directors on the direction of the company, they should resign.
Please contact us if you have a query about duties owed by directors, or if this article raises any other issue for you. We would be happy to assist you.
By Jude Spicer | Associate
The information contained in this article is provided for informational purposes only and should not be construed as legal advice on any subject matter.