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Directors' responsibilities during the pandemic

  • Describe the importance of directors and their responsibilities right now
  • Identify some of the challenges around conflicts of interest
  • Explain what wrongful trading is
Directors' responsibilities during the pandemic

There is no doubt that Covid-19 has changed the world irrevocably and even when this is behind us and we re-establish what the new normal will be, we are still required to comply with the law.

The government is in the process of passing legislation to relax certain laws, but that does not mean that we find ourselves in some new frontier wild-west, particularly when it comes to the duties of a company director.

If anything, Covid-19 has certainly refocused many directors’ attention to their duties as directors and there is nothing like a crisis to bring about focus.

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The duties of directors are enshrined in statute; they are set out in the company’s governance documents (Articles of Association and Shareholders Agreements); they are implied; and if you are the director of an FCA-regulated firm, then are also obligations under the Senior Managers and Certification Regime (SM&CR).

It is imperative to remember that the ultimate decision-making body of a company is its board of directors acting collectively.

The individual accountability of each director under the SM&CR does not create conflict or undermine this fact. 

It is absolutely essential in the current environment to ensure that the governance, culture and conduct at all levels are not compromised by the current situation.

The purpose of this article though is not to focus on the SM&CR but rather on the statutory duties and obligations of directors and one temporary concession the government has proposed to ensure that otherwise good and viable companies are able to survive the current economic turmoil without compromising the duty that each director owes.

The statutory duties of directors are set out in the Companies Act 2006 and set out below is a summary of each of those duties:

Duty to act within powers

 A director must act in accordance with the company’s constitution and must only exercise their powers for a proper purpose in accordance with the Act, the company’s articles of association, and where applicable, the shareholders agreement. 

Duty to promote the success of the Company

A director must act in good faith in a way that they consider would be most likely to promote the success of the company for the benefit of its shareholders as a whole.

The main consideration is how decisions are made by a director, whether formally via a board meeting or otherwise.

This is one area in particular that is important to focus on in the current environment. 

Directors should be talking to one another on a more regular basis than they would under normal circumstances. 

Sometimes these interactions will be informal and sometimes they will be formal. 

Whatever approach you have adopted as a board, it is recommended that contemporaneous notes be kept of all meetings and all decisions taken at those meetings. 

As most all boards will be meeting using some form of video conferencing then it is recommended that the meetings be recorded, and the recordings be preserved as a record if someone is not then going to go and take direct notes from that meeting.