Director Duties and When Personal Liability Bites

People often assume a company is a complete shield. It is not. Directors carry statutory duties in their own name, and several failures attach to them personally.

The core duties

• Act in good faith to promote the objects of the company and in the best interests of its members as a whole
• Exercise reasonable care, skill and diligence, with independent judgement
• Avoid conflicts of interest, actual or potential
• Refrain from achieving any undue gain, for yourself or your relatives

Where liability becomes personal

Unpaid statutory dues — particularly employee provident fund and tax deducted at source — commonly attach to officers in default. So does cheque dishonour, misstatement in a prospectus, and failure to maintain statutory registers and filings. Fraudulent trading exposes directors without limit.

What protects you

Attend meetings and have your dissent recorded. Do not sign what you have not read. Insist on the register of related-party transactions being kept current. If you are a non-executive or independent director, remember that liability attaches only for acts that occurred with your knowledge, consent or connivance — so silence at a meeting is a risk, not a defence.

If you have been named in a notice as an officer in default, act immediately. Early representation is far cheaper than a contested prosecution.