Directors Duties During Covid 19

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The pandemic has brought about unprecedented pressure and challenges to all businesses.  Directors Duties under the Companies Act 2104 (the “Act”) remain unchanged.  If a company is at risk directors must take care that they conduct their affairs and those of the company carefully and with regard to what might happen if the company fails. The challenges for directors also extend to their obligations under the various pieces of employment legislation some of which this newsletter also deals with. The rule of thumb, always, is that directors must act with due care and diligence. The decisions taken by them must always be in the best interest of the company.  However, consideration must also always be given to the company’s employees and creditors.

If the directors of a company believe the company may be insolvent or, is becoming insolvent two questions must be asked, these are :-

 1)Can the company pay its debts when or as they fall due?

 2)Do the company’s assets exceed its liabilities?

If future funding for the company cannot be found and the company is insolvent it should cease trading.  A failure to do so may expose the directors to personal liability for the company’s debts. The Directors should seek legal advice immediately.

A Liquidator if appointed, has various responsibilities and will look at the manner in which the directors conducted the company’s financial affairs. This will include all financial transactions associated with the directors and their families.  A director may be personally liable for the debts of an insolvent company if they have knowingly or recklessly carried on business in circumstances where the company was insolvent.  This is known as Reckless Trading.  A director may be made personally liable if he/she knowingly carries on a business with intent to defraud.

 A prosecution can flow from this also.  If a director is found to have fraudulently disposed of property a Liquidator can seek the return of this property if the disposal of it defrauded the company, its creditors or members. There is no time limit on a prosecution for such a disposal and the prosecution does not need to prove that the disposal was done with the intent to defraud. “Fraud” in this context is construed widely and extends to circumstances where directors transfer assets beyond use so that they are not available to creditors.

Directors who have been found to have acted inappropriately can be disqualified from acting as a director. If you are Disqualified from acting as a director it is usually for a period of five years.

The Office of the Director of Corporate Enforcement recently issued guidance on directors’ duties during Covid 19. The statement issued provided an update on how the ODCE will assess the actions of directors of companies which have gone into liquidation as a result of the pandemic. The statement does not absolve directors of their duties to act honestly and responsibly but it should offer a level of comfort for those directors who carry out ongoing reviews and analysis of their company’s financial position during the Covid 19 crisis. For more information on this visit –