Directors, including non-executive directors, should always keep an eye on the financial wellbeing of the companies they manage during these difficult times.
Some practical steps that directors should consider taking include:
- Constantly monitor the company’s affairs and policy. They should remain critical and inquisitive about the financial and business information they receive. Ensure they maintain familiarity with the financial status of the company by regularly reviewing and understanding its financial statements, ask questions take specialist advice from their legal representatives and accountants and seek further information (including regarding cash flows, cash reserves and creditor positions), as necessary;
- Regarding potential conflicts – take steps where it is indicative that the company finances are strained;
- Keep a review of the company structure, ensuring no conflicts of interest arise if the financial situation deteriorates and/or a restructuring process proves necessary;
- Seek separate independent legal advice if needed: assessing whether the mandate of the company’s existing legal and professional advisors (the same lawyers may not be able to advise directors as well as the company in relation to their personal liabilities; and
- Ensure decisions are documented at the correct board level to ensure good record-keeping demonstrating that the directors have considered what was best for that company and its creditors. This will provide protection for the directors concerned, and also reduce the risk that others within the company / group will be found to be shadow or de facto directors.
Where there are indications that the company may be heading into insolvency, be mindful of potential conflict of duties that may arise in such situation and the risks in causing the company to trade as usual.
For further information or to discuss generally, on an initial no charge basis, please contact Sam Pedley, Partner, mfg Solicitors LLP at samuel.pedley@mfgsolicitors.com or call 01562 516119 or 07391 417090.
Sam Pedley is part of the Firm's Restructuring and Insolvency Sector.
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