The Responsibilities of Directors – Understand them and act on them.

The responsibilities of directors are many and varied, and it is important that directors understand their responsibilities and act on them, or the consequences can be serious and lead to director disqualification. The case of R.D. Industries Ltd*, is a case in point, and also a slightly unusual director disqualification case in that the directors were disqualified after they caused or allowed the company to breach the terms of an Invoice Discounting Agreement (‘IDA’) it had entered into.

It is a case that shows that directors cannot delegate their duties and responsibilities to others. In this instance, the directors of R.D. Industries Ltd should have taken steps to keep themselves informed as to what was being done in relation to a business critical IDA. Board meetings should have been held at which open and frank debate should have taken place as to how to deal with the problem.

One of the principal functions of a board of directors is to ensure that individuals with particular responsibilities are held to account and it is the responsibility of the Managing Director to ensure that this happens.

In this case, experienced business people would be expected to understand financial information derived from an IDA, and R.D. Industries Ltd and the directors would be expected to act with integrity/good faith within the provisions of the IDA.

The fact that this was not the case means that lessons to be learned include: make sure you fully understand your responsibilities as directors and act as such; hold your fellow directors to account at minuted board meetings and ensure that the company does not act in breach of business critical facilities, such as IDAs.

The consequences for the directors of R.D. Industries Ltd for not fully understanding their responsibilities as directors were serious as they were disqualified for periods of six years and three years respectively.

At NDP, we specialise in defending director disqualification, often minimising the periods of disqualification where we cannot stop it. We can also help to find ways of disqualified directors being able to continue to act as directors with appropriate safeguards. So if you have a director disqualification problem or would like to talk to us about your responsibilities as a director, contact us for a free initial discussion.

(*In the Matter of R D Industries Ltd sub nom Secretary of State for Business, Innovation & Skills v. (1) Roger Lionel Dymond and (2) Michael William Dymond [2014] EWHC 2844 (Ch).)

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