Directors' Duties: How can I protect myself as a director?

Posted on: 17/01/2024

In the third of our three-part series on directors’ duties, we cover how directors can protect themselves and unsure they don’t breach their duties.

When becoming a director for the first time there will always be an element of learning however there are ways to try and protect yourself from possible liability by virtue of the role. In this final part in the series, we examine some practical steps available to minimise or prevent such personal liability.

• Carry out adequate due diligence into the company, its shareholders and directors before accepting the position. If necessary, take financial and legal advice. 
• Surround yourself with good advisers that you can trust. 
• Make sure that you have the necessary knowledge and experience to take up such a role particularly accounting knowledge and the requirements of the Company’s Articles of Association.
• Actively keep yourself fully informed about the activities of the company and its ongoing financial position. 
• Familiarise yourself with the duties under the Companies Act 2006 and the necessary Companies House filings – if in doubt take advice. 
• Keep full minutes of all Board Meetings and where decisions are taken your own thoughts and research into the course of action taken. This may be useful evidence of acting honestly reasonably and with the appropriate skill care and experience. 
• Be aware of where prior authorisation may exonerate a breach such as conflicts of interests or declaration of interests in a proposed transaction.
• The Companies Act does allow shareholders to ratify the conduct of its directors - in effect the company can sanction behaviours that otherwise would be negligent or a breach of trust.
• In certain circumstances, the courts can relieve a director of liability where they have acted reasonably and honestly.
• The company can purchase directors' liability insurance to cover liability for negligence default or breach of duty. 
• Act only in accordance with your service contract and actual authority given – if in doubt check before acting. 
• Companies Policies in areas such as Health and Safety, Environment, Anti Bribery, Ethics, Compliance and Corporate Responsibility should be produced with the director’s duties in mind and processes should be in place to ensure compliance with all laws affecting the business.