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Directors’ liabilities and the Insolvency Act 1986

Mike Stevenson outlines steps directors can take to protect themselves from legal redress

4 October 2002

Today’s uncertain economic climate means more companies could face financial difficulties. Against this backdrop, directors and their advisers must be aware of their liabilities in relation to insolvency; this article outlines practical measures directors might take to protect themselves if they see financial problems ahead. The law imposes upon all directors the same duties and potential liabilities, regardless of the role they play and the basis of their holding office. Accordingly, there is no distinction for these purposes between executive and non-executive directors, general managing directors and those responsible for specific areas only of the company’s business, nor between de facto, de jure and shadow directors. Directors’ liabilities As a matter of English general law, directors owe a duty to act bona fide in the best interests of the company. Directors owe their duties to that company, with the company alone having the right to sue the director...

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