UK Law and Practice Contributed by: Kate Stephenson and Zoe Stembridge, Kirkland & Ellis
7.2 Personal Liability of Directors Breach of duty claims are brought against individu - al directors rather than the board collectively. Each director is personally responsible and will be held to a different standard depending on their experience, although all must reach the minimum standard of competence expected of a company director. Even when a claim is brought against the board, the court has discretion to impose liability on directors individu - ally or collectively. Wrongful and fraudulent trading applications can be brought by a liquidator, an administrator or a third party to whom the claim has been assigned. Individ - ual creditors cannot bring these claims. Misfeasance claims cannot be assigned and must be brought by the liquidator(s) or administrator(s). A breach of directors’ duties can lead to a director incurring personal liability, or being disqualified from acting as a director or being involved in the manage - ment of a company for a specified period. In extreme cases, it may even lead to a criminal prosecution. 7.3 Duties and Personal Liability of Officers There is no obligation on directors to commence insolvency proceedings when a company is insolvent. However, directors may be personally liable if they breach certain duties. For example, directors can be liable for wrongful trading where they knew or ought to have concluded that there was no reasonable pros - pect that the debtor would avoid insolvent liquida - tion or administration and failed to take every step to minimise losses for creditors. In these circumstances, a court may order a director to contribute some or all of the deficit between the amount that was actu - ally available and the amount that would have been available for distribution to creditors had the debtor ceased to trade earlier. There are also potential criminal sanctions, including for fraudulent trading if the business was carried on with the intent to defraud creditors. At all times, the directors of an English company owe fiduciary duties to the company itself, and not to any stakeholder of the company directly; see 7.1 Duties of Directors and 7.2 Personal Liability of Directors .
As noted in 6.1 Sources of International Insolvency Law , the UK has adopted the Judicial Insolvency Net - work (JIN) Guidelines on court-to-court communica - tion and co-operation for use in cross-border insolven - cy matters, and is planning to adopt the UNCITRAL Model Law on Enterprise Group Insolvency. 6.6 Foreign Creditors Foreign creditors are dealt with no differently than domestic creditors in UK insolvency proceedings. 7. Duties and Liability of Directors and Officers 7.1 Duties of Directors Company directors owe certain statutory duties to the companies of which they are directors, including to act in the way they consider, in good faith, would be most likely to promote the success of the company. In doing so, they should have regard to: • the likely consequences of any decision in the long term; • the interests of the company’s employees; • the company’s business relationships with suppli - ers, customers and others; • the impact on the community and the environment; • the desirability of maintaining a reputation for high standards of business conduct; and • the need to act fairly as between members of the company. Once a company enters the “zone of insolvency”, the directors’ duty to promote the success of the com - pany extends to a duty to consider the interests of the company’s creditors as a whole. Directors should consider creditors’ interests, balancing them against shareholders’ interests where they may conflict. A company enters the zone of insolvency when it is insolvent or bordering on insolvency, or when an insol - vent liquidation or administration is probable. At all times, the directors of an English company owe fiduciary duties to the company itself, and not to any stakeholder of the company directly.
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