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Insolvency - Issues for directors

16 March 2017

All directors owe duties to their companies. When a company is solvent, those duties are owed to the company personified by its shareholders. But when insolvency is pending, directors must act in the company’s creditors’ best interests. That difference means that the nature of the directors’ duties undergoes a significant shift when insolvency threatens.

Who is a director?

The Companies Act 2006 describes a director as including any person occupying the position of director by whatever name called. A person registered at Companies House as a director will be a director. Someone who is acting as a director without having been validly appointed will also, generally, be a director. Directors include executive and non-executive directors and anyone in accordance with whose directions or instructions the directors of a company are accustomed to act (a shadow director). It is a person’s function rather than his or her title that is important.

Someone closely involved in the management and direction of the company, even if employed as a consultant or through a service company, may be deemed to be a director for all purposes relating to insolvency.

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