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Route to the door is different for directors

View profile for Samuel Pedley
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When Suella Braverman was removed from her cabinet post she decided to take a defiant stance, with an open letter criticising PM Rishi Sunak for reneging on promises and calling for a leadership election. 

It was a defiant, headline-grabbing move and one that may inspire other discontents looking to speak out against their bosses.  But the path for a dissatisfied cabinet minister is not one that may be translate so easily in the corporate world.

For a company director, while resignation may mean they are no longer bound by general duties, their corporate responsibility can carry on long after stepping down from the board. 

Under the Insolvency Act 1986, if a director has allowed a company to continue trading when there is no reasonable prospect of avoiding insolvency, they could be liable, even after resigning. 

Similarly, a director who has acted negligently, fraudulently, or in breach of their duties during their time may be held personally liable for any losses later incurred by the company.  

Neither will resignation be any protection if a conflict of interest arises through use of any property, information or opportunity gained during a time as director.  And if a director has made personal guarantees to secure any company loans or debts, these remain binding, regardless of whether they have resigned.  

Importantly, directors looking to resign must ensure that the company’s finances and other corporate responsibilities are well managed to minimise any risk of personal liability later on, as compliance with the Companies Act 2006 requires directors to exercise reasonable care. 

Said Litigation expert Sam Pedley of West Midlands based mfg Solicitors LLP: “Even if a director leaves the business in a position of financial stability, if the company were later to become insolvent then any director who served during the three years running up to the insolvency could be subject to investigation.

“The impact of this could be far-reaching.  For example, where a director is found to have played a role in the company’s difficulties in those three years, they could be disqualified from being a director for up to fifteen years, which could prevent them continuing in any subsequent role as a director.” 

Added Mr. Pedley:  “For an MP, the resignation or dismissal may be very high profile, but it’s effectively a clean break.  For a director, it’s important to be sure that any resignation takes account of the whole picture and they ensure that financial management and other corporate responsibilities are all in good order before they sign the exit paperwork, if they want to minimise any future risk of personal liability.

Please note:

This is not legal advice; it is intended to provide information of general interest about current legal issues.