Directors' Liability on Insolvency
When a company enters a formal insolvency procedure its directors are more likely than at any other time in the company's existence to face civil and/or criminal actions for breach of duties or obligations imposed on them by company law or other more generally applicable rules such as the Fair Trading Act of 1986. Part of a liquidator's primary duty is to realise the assets of the company, those assets including, of course, causes of action that the company may have against its directors. Additionally, on liquidation, other specified actions that may be taken against company directors accrue to the liquidator. What, if any, action a company is able to take against its directors will form part of the administrator's report sent to creditors of a compay in administration prior to the watershed meeting and may well have an impact on the decision made by the creditors at the watershed meeting. Both an administrator and a liquidator have a duty to notify the Registrar if they suspect directors have committed offences under specified legislation including the Companies Act 1993, the Securities Act 1978 and the Securities Market Act 1978. However, despite the apparent breadth of the title of this paper, I have been asked to focus on two particular aspects of directors' liability on insolvency. The first is the nature, and potential liability arising from breach, of directors' duties on insolvency. The second is the new prohibition on director involvement in phoenix companies in ss 386A-286F of the Companies Act 1993.