The New Company Law – What directors really need to know… and what they need to do.
The Companies Act 2014 is due to be enacted in law in June 2015. It aims to simplify the masses of existing legislation (3097 pages) into a new more straightforward piece of legislation. There are 1448 sections in the new law but what directors really need to be aware of are that the role, responsibilities and duties of directors will increase in 2015 and beyond. The Act sets out eight duties of company directors as follows:
1) Act in good faith in what the director considers to be the company’s interests;
2) Act ‘honestly and responsibly’ in the company’s affairs;
3) Act in accordance with the company’s constitution (1 page document);
4) Not to use company property for their own or others use unless approved by the members or in the constitution;
5) Not agreeing to restricting the director’s power to exercise an independent judgment;
6) Avoiding conflicts of interest unless released by the members or by the company’s constitution;
7) Exercising care, skill and diligence; and,
8) Have regard for the employees and members of the company.
Directors will also be required to ensure that the person appointed as the Company Secretary is suitable and has the necessary skills as required under the Act. Whilst much of the new legislation may seem not seem too different to the casual reader the likelihood is that the new legislation will be implemented to the letter of the new law. In particular, directors need to be aware of the following:
Officer in Default’ is frequently mentioned in the Act.
Loans to directors need to be properly authorised and meticulously recorded.
Option to seize the personal assets of directors (S.53) in the event of default where regulations have been breached.
More prosecution & disqualification of directors of insolvent, un-liquidated companies.
Directors cannot walk away and abandon an insolvent company. If they do they face disqualification from acting as directors or managers of any business for a minimum of five years.
In reality the increased enforcement will almost certainly mean that the enforcement of the rules will be precisely as outlined. When this new legislation is combined with High Court precedents that have established that directors cannot evade their responsibilities by either ‘ignorance of the law’ or ‘failure to review regular management accounts’ then the scope for personal liability is massively increased.