Court of Appeal clarifies directors duties

The Court of Appeal clarified handed down an important decision in an appeal case taken by the Director of Corporate Enforcement against a decision in Re Walfab Engineering Limited. The Court has re-affirmed that no material distinctions exist in the company law obligations of a director of any type of company regardless of the size or activities of the company.

Key Points

  • Duties and responsibilities are owed by all directors regardless of size or type of business
  • Passive directors are not relieved from their duties because of their passive role
  • The economic conditions do not play a factor in excusing directors of their duties to act responsibly if the company is insolvent

The case involved a decision taken by Barret J in the High Court who refused to disqualify or restrict three directors of two companies Walfab Engineering Limited and RPB Products Limited. The companies were struck off the register of companies for failure to file annual returns and financial statements for a number of years.

The directors blamed the economic downturn for the financial position of the companies. One of the directors claimed she had never took an active role in the companies and never received any directors’ remuneration from the companies.

The High Court made a concession to the fact that the relevant directors were not professional directors, did not possess professional qualifications and had never served at the helm of large quoted enterprises.

The Director of Corporate Enforcement appealed the decision and The Court of Appeal held that these considerations were irrelevant to assessing whether a director has acted responsibly.

“It matters not that they be directors of family companies, or be at the helm of large or quoted enterprises. Neither do the qualifications or the economic challenges that the companies may be facing affect the obligations of directors to act responsibly in respect of an insolvent company. “

“It would be contrary to the whole notion of proper corporate regulation that passive directors would be exonerated from liability or relieved from disqualification or restriction on the basis of the passive nature of their role. “

The case is an important reminder that:

  • directors of all types of companies are aware of their duties and responsibilities,
  • they act in the best interests of the company;
  • they take an active role in the company and if the company is facing insolvency take the necessary steps to wind up the company and not walk away and let it be struck off the register of companies

Please Note:

Our CLS Insights aims to bring you practical information and news on Company Law and Company Secretarial. We cover the topics that matter to your business and give practical tips and also the benefit our experiences. Please remember this article is a guide and legal advice should always be obtained. If you have any queries please contact one of the team and we would be happy to help.

Share this on...