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Out-Law Guide 2 min. read

Directors' statutory duties beyond the Companies Act

This guide is based on UK law as at 1st February 2010, unless otherwise stated. A wide range of statutes imposes duties on directors, including those dealing with taxation, the environment and...

This guide is based on UK law as at 1st February 2010, unless otherwise stated.

A wide range of statutes imposes duties on directors, including those dealing with taxation, the environment and discrimination. We focus on health and safety in: Health and Safety and corporate manslaughter, an OUT-LAW guide; and on competition law below, but you do not have to stray beyond the Companies Act to find a variety of further duties. More than 200 involve offences directors can commit, with a variety of penalties applying to each. The majority are summary offences that are dealt with by a magistrate. Generally, the sanctions are fines and a criminal record for persistent offences, but in some cases the penalty will be imprisonment.

Most relate to administrative and compliance matters such as the proper maintenance and retention of books and records, and the preparation and lodging of documents and returns with the Registrar of Companies. A good company secretary can keep you out of trouble. (See: The code of directors' duties, an OUT-LAW guide.)

An example of a new tax-related duty came in the Finance Act of 2009: a company’s senior accounting officer (usually the finance director) must certify annually that its accounting systems are adequate to ensure accurate tax reporting. If they are careless in giving such a certificate or deliberately wrong, the individual as well as the company is liable to penalties.

Competition law

Companies can face civil penalties of up to 10 per cent of global turnover if they infringe competition law, and directors can be held personally liable for serious breaches of the EU and UK rules.

In the United Kingdom, an individual who participates in a cartel can be found guilty of a criminal offence (the so-called ‘cartel offence’). It is an offence punishable by up to five years’ imprisonment or an unlimited fine (or both) for an individual dishonestly to agree to enter into or implement certain anti-competitive agreements in the United Kingdom. These include direct or indirect price fixing, the limiting of production or supply, and market sharing or bid-rigging arrangements – ie the most serious ‘hard core’ breaches of competition law.

A director of a company that commits any breach of competition law can also be disqualified from acting as a director for up to 15 years on the basis that they were unfit to be involved in the management of a company.

What has to be proved for an individual to be held to be acting dishonestly? The court will apply a two-part test. First, was the individual acting dishonestly according to the standards of reasonable and honest people? Second, did they realise that what they were doing was dishonest by those standards?

The law also provides that a disqualification order can be issued against a company director if they knew, or ought to have known, that the company had breached EU or UK competition law. This sanction applies to any breach – not just the ‘hard core’ cartel infringements.

The Office of Fair Trading (OFT) wants to step up its enforcement of UK competition law and increase deterrence by using its powers more regularly to seek director disqualification orders, even where the director’s involvement in the breach was indirect.

Directors, including the non-executives, are not expected to be experts on competition law, but they need to appreciate that competition law compliance is a crucial matter for their companies. The OFT and other regulators expect every director to know that price-fixing, market sharing and bid-rigging agreements are unlawful and that they can’t simply turn a blind eye to suspicious activity within the company. Signing off an expenses claim for an unlawful meeting could be enough for a director to be caught. The OFT will, however, take into account any actions taken by such a director to create a compliance culture and to avoid breaches of competition law.

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