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11th June 2009, Page 26
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Which of the following most accurately describes the problem?

With MPs' behaviour in the spotlight it is time to remind haulage company directors of their responsibilities.

Words: John Davies

More than 1 000

individuals are disqualified from acting as company directors every year and the number is increasing. Some are disqualified as the result of technical breaches of the law while others are deemed to be 'unfit' because of reckless or dishonest behaviour.

Directors can avoid being trapped by some of the trickier areas of company law by following this advice.

Keep proper minutes

Many smaller companies fail to keep proper minutes of their board meetings. Not only is it a legal requirement to do this, but it is in directors' own interests to ensure that decisions are recorded clearly for future reference. Minutes must be kept for 10 years. Properly written minutes also prevent arguments about what was agreed at previous meetings.

Don't delay in filing the accounts and returns

Directors have a legal duty to prepare their company's annual accounts and, once approved and audited, to file them at Companies House within 10 months of the year end. An immediate fine of £150 is levied automatically on a company that files late. On top of this, individual directors of companies that are late in filing their accounts may be prosecuted.

Contribute what you can

The Companies Act 2006 changed the law on directors' duties.Traditionally, the law expected directors to bring to their company whatever skill or expertise they possess. For example, a director who is a qualified accountant will be expected to show a particular interest in — and assume a higher degree of responsibility for — the company's financial and accounting affairs.This position remains the same, but now the law lays down a minimum, objective threshold of skill and care — all directors, regardless of the size of their company, are now expected to conform to this standard and carry out their duties in accordance with what the courts would deem to be society's 'reasonable' expectations of the conduct of company directors.

Don't ignore signs of danger

Where a company becomes insolvent, its directors owe their duties not to the shareholders but to the creditors. So when a company goes into insolvent liquidation, the courts may make individual directors personally liable for debts that their company runs up after the point when they knew — or should have known — that the company was not likely to avoid its eventual fate. The liquidator may also be able to claim back from directors any payments received by them from the company in the two-year period leading up to the insolvency.

Keep your public record up to date

Details of all changes in a company's directors and company secretary, and changes in their personal details — address, surname etc — must be notified to Companies House within 14 days of the changes. The company's annual return should also be filed within 28 days of its chosen 'return date! Make sure you know your status A director will always be an -officer' of the company but not necessarily an employee. Whether or not a director is an employee will depend on whether there is any additional contract or understanding that provides that the director concerned is to provide services for the company on a formal basis. Directors who are employees must be afforded all relevant employee rights.

Don't do both jobs Since April 2008, private companies do not need to appoint a company secretary. Where a company chooses to have a secretary, the individual can act as director and secretary but only where there are at least two directors.

Watch out for the 'phoenix syndrome' Where a company goes into liquidation, it is legal for its members and directors to start up a new company immediately, pursuing the same line of business, from the same address as the insolvent company There are rules, however, which seek to protect consumers and other businesses from being duped into thinking that the 'new' company is the same entity as the 'old one. A director of a company that has gone into insolvent liquidation may not (without special leave of the court) become a director of or be otherwise involved with a new company that has the same or a similar name as the insolvent company. Those who infringe this rule may be made personally liable for the new company's debts Be careful with dividends Under Companies Act rules, companies may not make any distribution of their capital funds, for example in the form of dividends, unless these are paid out of net profits.

Even if a company is very small, owner-managed, and unsophisticated in its purpose and operations, it is still subject to these legal restrictions. No company should therefore pay dividends to its members on the sole ground that there appears to be sufficient spare cash in the company's bank account.

Conflicts of interest Every director must disclose to his or her fellow directors details of any matter before the board in which he or she has a direct or indirect interest. This is, in part, to ensure that directors do not confuse their own personal interests with those of their company. Directors who fail to make such disclosure, where appropriate, risk a fine; the contract concerned may be rendered void. it

• John Davies is head of business law at the ACCA

Further information Iwww.companieshouse.gov.uk www.berr.gov,uk/whatwedo/ businesstaw/inclex_html

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