COVID-19 – Top tips for minimising the risks of personal liability in relation to directors’ duties

By Ailsa Anderson

On 20 May 2020, the Corporate Insolvency and Governance Bill (“Bill”) was introduced. It has potentially far-reaching consequences for directors. Our blog about the reforms and the risks of personal liability for directors is here.

Some of our top tips for minimising the risks of personal liability for directors are:

Finances – Ensure you have realistic financial plans in place (both current and forecasted), keeping a close eye on debt arrangements and any scheduled repayments. If your company is entering the financial “twilight zone” and is, potentially, verging on insolvency, you must shift your focus from the interests of shareholders to the interests of creditors as a whole when acting and making decisions.

Decisions – Hold regular board meetings taking accurate minutes recording key decisions, declaring any conflicts of interest and seeking expert advice, as necessary. You may need to be able to justify decisions to shareholders and /or creditors now or in the future.

Company documents – Having the right provisions in your contracts and clearly drafted company articles, service contracts and shareholder agreements can enable you and your company to effectively manage risk and minimise the risk of disputes escalating.

Insurance – Check whether adequate directors’ and officers’ liability insurance is held. If not, consider obtaining it as it can cover the cost of claims made against directors by shareholders, investors, employees, regulators and /or third parties. On the topic of insurance, you should also identify the cause/s of any losses your company may have suffered and consider if it holds insurance that could help it to recover these. If so, make notifications of potential claims to your insurers and / or brokers now (please click here for our previous blog).

Emergency and contingency plans - In these uncertain and fast-moving times, when company liabilities may be increasing, well-advised directors will be keeping a careful eye on their duties and the changing legal landscape. Have plans in place to help in the short term and for the situation changing. Consider using Government financial assistance and /or dispensation that could be available such as mortgage, rental or business rate payment holidays.

Many of the issues currently being faced by directors and companies are unprecedented and laws are evolving quickly to seek to address them. Where any uncertainty arises, you should consider obtaining expert legal advice in order to minimise risks to yourself and your business.

How we can help

If you are affected by these issues and would like to learn more, please join our free remote webinar on Thursday 28 May, from 2:00 pm to 3:00 pm by reserving a place here.

Please do get in touch with Ailsa Anderson (ailsa.anderson@irwinmitchell.com) if you would like further information relating to this topic. We can help to advise you on your position and provide commercial solutions if problems arise.