Are you still liable as a director after resigning?
Advice for Company Directors
Directors play a crucial role in the governance and management of a company, responsible for making strategic decisions, ensuring compliance with regulations, and safeguarding the interests of shareholders. However, what happens to a director’s liability after they resign from their position is a question of significance. While directors are generally protected by the corporate veil, there are circumstances under which their liability may extend beyond their resignation. In this article, we will explore the duration and extent of a director’s liability after resignation.
Liability During the Directorship
Before delving into post-resignation liability, it’s important to understand that directors are accountable for their actions and decisions during their tenure. During their time in office, directors are expected to act diligently, in good faith, and in the best interests of the company and its shareholders. Failure to do so can result in legal action, including personal liability for breaches of duty such as mismanagement or fraud.
Resignation and Liability
When a director resigns from their position, they may assume that their liability ends with their departure. However, this is not always the case. The duration and extent of a director’s liability after resignation depend on various factors, including the nature of the liability, the reason for resignation, and applicable laws and regulations.
Ongoing Liabilities:
• Contracts and commitments: Directors may remain personally liable for contracts or commitments entered into during their tenure, even after resignation. If a contract explicitly holds the director personally responsible, they can be sued for any breach.
• Tortious acts: If a director is personally involved in wrongful acts, such as negligence or defamation, during their directorship, they can be held liable for these actions even after they resign.
Fiduciary Duties:
• Breach of fiduciary duties: Directors owe fiduciary duties to the company and its shareholders. If a director resigns while under investigation for a breach of these duties, they can still be held accountable after their departure.
Statutory Obligations:
• Tax and regulatory obligations: Directors may be liable for unpaid taxes or regulatory compliance issues that occurred during their directorship, especially if these issues are discovered after their resignation.
Insolvency:
• If a company becomes insolvent, directors can be personally liable for debts incurred during their tenure if it is determined that they acted negligently or engaged in wrongful trading.
Personal Guarantees:
• Directors who have given personal guarantees for company loans or debts are typically responsible for fulfilling these obligations even after resignation.
Fraudulent or Improper Conduct:
• Directors engaged in fraudulent or improper conduct can be subject to legal action after resignation, as such conduct may not come to light until later.
Limitation Periods
The duration of a director’s liability after resignation is often subject to limitation periods, which vary by jurisdiction and the type of liability involved. In some cases, the statute of limitations may extend for several years, giving creditors or stakeholders ample time to take legal action.
Advice from Insolvency Practitioners
In conclusion, a director’s liability does not automatically end with their resignation. The extent and duration of their liability after resignation depend on various factors, including the nature of the liability, the reason for resignation, and applicable laws. Directors must be aware of their ongoing responsibilities and potential liabilities even after they step down from their positions. Seeking legal advice and maintaining good corporate governance practices can help directors mitigate the risks associated with post-resignation liability.
Keywood Group is a firm of Licensed Insolvency Practitioners with offices based in Birmingham and London. Please get in touch for a free consultation by calling us today on 0121 201 0399 or 0208 912 0399
