Directors' statutory duties
This article is based on UK law as at 1st April 2007, unless
otherwise stated.
Introduction
A wide range of statutes imposes duties on directors, including
those dealing with taxation, the environment and
discrimination. More than 200 statutes involve offences
directors can commit, with a variety of penalties applying to each.
The majority are summary offences that are dealt with by a
magistrate. Generally, the sanctions are fines and a criminal
record but, in some cases, the penalty will be imprisonment.
These duties relate to two categories:
- administrative and compliance matters;
- restrictions and disclosure requirements.
The former includes the proper maintenance and retention of
books and records, and the preparation and lodging of documents and
returns with the Registrar of Companies etc. The latter includes
the disclosure of interests in contracts and transactions, and
provides for certain other “fair dealing” requirements.
Competition law
Companies can face civil penalties of up to 10 per cent of
global turnover if they infringe competition law and, since 2003,
it has also been possible for directors in the UK to be held
personally liable for serious breaches of EC and UK competition
law. An individual who participates in a cartel can be found guilty
of a criminal offence (the so-called “cartel offence”) and a
director of a company that commits any breach of competition law
can also be disqualified from acting as a director for up to 15
years.
It is an offence punishable by up to five years’ imprisonment or
an unlimited fine (or both) for an individual dishonestly to agree
to enter into or implement certain anti-competitive agreements in
the UK. These include direct or indirect price fixing, the limiting
of production or supply and market sharing or bid-rigging
arrangements – i.e. the most serious “hard core” breaches of
competition law.
What has to be proved for an individual to be held to be acting
dishonestly? The court would apply a two-part test. First, was the
individual acting dishonestly according to the standards of
reasonable and honest people? Second, did they realise that what
they were doing was dishonest by those standards?
The law also provides that a disqualification order (see below)
can be issued against a company director if they knew, or ought to
have known, that the company had breached EC or UK competition law.
This sanction applies to any breach – not just the “hard core”
cartel infringements.
Disqualification
A defaulting director may expect not only personal or criminal
liabilities as a consequence of a breach of duty but also a court
order disqualifying them from acting as a director for up to 15
years.
A person can be disqualified from acting as a director on a
number of grounds, including persistent breach of company law
legislation and conviction for fraud. Most applications are made
under the section of the Company Directors Disqualification Act
that relates to a director of a company that becomes insolvent and
to their “fitness” to be concerned in the management of a
company.
If a disqualified director ignores the order, they will commit a
criminal offence punishable by a prison sentence of up to two
years.
See: OUT-LAW's guide to Directors'
duties: Health and safety and corporate manslaughter
