The following Restructuring & Insolvency guidance note provides comprehensive and up to date legal information covering:
Directors of companies which become, or are likely to become, insolvent are under a duty to maximise the return to the company’s creditors. The relevant statutory provisions are contained in:
the Insolvency Act 1986 (IA 1986), and
the Company Directors Disqualification Act 1986 (CDDA 1986)
The Companies Act 2006 (CA 2006) codifies most, but not all of the duties imposed on directors by case law and equitable principles. There are seven general duties, of which three are most relevant to companies in financial difficulties:
the duty to promote the success of the company for the benefit of its members as a whole
the duty to exercise independent judgment, and
the duty to exercise reasonable care, skill and diligence
In general, the statutory provisions and legal duties applicable to directors referred to in this Practice Note apply equally to shadow directors. For more information see Practice Notes: Directors' duties—directors' conduct: CA 2006, ss 171–174 and Directors' duties—nature, scope, interpretation and application.
When a company becomes financially distressed, and formal insolvency proceedings become more likely, the directors’ duty to promote the company’s success (ie to act in the interests of the members as a whole) falls away and is replaced by
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