HCR Law Events

Duties and obligations Q&A

As a director or trustee you need to understand your obligations and duties during this unprecedented time. We’ve answered your questions. Call our free helpline on 08000 862 819 if you need advice.

Back to our Covid-19 Hub.

What duties do directors have in relation to Covid-19 and what issues might arise when complying with these duties?
What could be the consequence of failure to perform my directors’ duties?
I run a regulated business – do I have extra obligations or duties?
Do I need to file my company accounts?
How will the three-month suspension of wrongful trading provisions affect me?
What should I do if I am, or may be, trading whilst insolvent?
How careful do we need to be about documenting the decisions we come to as directors?
How can we hold board meetings if we’re not allowed to travel to and from the office or to meet?
Can I continue to pay myself dividends?
Can shareholders vote electronically on written resolutions?
Can your statutory registers be held electronically?
With our workforce working from home, what are our data protection obligations?
What health and safety obligations do companies have towards their employees?
What duties, and potential liability, do charity trustees have?
How can I become personally liable as a director of a charity or as a Trustee of a CIO?
How do care homes and residential settings meet their obligations to staff, residents and relatives?

What duties do directors have in relation to Covid-19 and what issues might arise when complying with these duties?

Answered March 26 2020

Company directors have duties to the Company (its shareholders), its employees and creditors (the latter becoming one of the directors’ main considerations where the Company is financially vulnerable). There are many statutory (as set out in the Companies Act 2006), fiduciary and common law duties for directors to be aware of, but in the Covid-19 context these two will be of particular relevance to all:  promoting the success of the business, and exercising reasonable skill, care and diligence.

Directors must act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.

Success will often mean a long-term increase in value but fundamentally it is up to each director to decide whether it is appropriate for the company to take a particular course of action. Therefore, directors should have regard to, and balance:

  • the likely consequences of any decision in the long term
  • the interests of the company’s employees
  • the need to foster the company’s business relationships with suppliers, customers and others
  • the impact of the company’s operations on the community and the environment.

Directors may have to take decisions which are commercially detrimental to the business, but which are in the interests of its employees and the wider community. However, acting in the employees’ interests is likely to enhance the reputation of the company and reduce the likelihood of any claims.

Directors must exercise the same care, skill and diligence that would be exercised by a reasonably diligent person. The expected standard is measured against both objective and subjective yardsticks.

A word of warning though; if a Company is financially vulnerable or even insolvent (i.e. it is unable to pay its debts as and when they fall due and/or its liabilities exceeds its assets) then due consideration must be given to the creditors and how any continued trading may impact on them.

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What could be the consequence of failure to perform my directors’ duties?

Answered March 26 2020

Given that the Covid-19 pandemic will result in directors entering uncharted territory, an ill-advised decision is unlikely to attract liability for breach of duty (as long as more could not have been reasonably expected of someone else in his or her position).

In the context of health and safety, if an offence is committed with the consent or connivance of a director (or a senior manager) or is attributable to any neglect on their part, that individual may be prosecuted and convicted alongside the company itself.

In extreme circumstances (but one where there is a growing trend) if an individual director’s grossly negligent behaviour causes a person’s death, they could be found guilty of individual gross negligence manslaughter. The penalties for breaches of health and safety legislation vary, but can be an unlimited fine or up to two years imprisonment (and life imprisonment for a conviction of gross negligence manslaughter).

In addition, and depending upon what the actual breach or breaches are and the Company entering a formal insolvency process, this could also lead to the directors becoming personally liable.

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I run a regulated business – do I have extra obligations or duties?

Answered March 26 2020

You should consider preparing for the risk that senior managers approved by your regulatory body could be personally affected by Covid-19. In this case, their roles may need to be temporarily carried out by others who may need to be pre-approved by your regulatory body. You might also need to consider the impact of the Covid-19 on the running of your board (with any contingency arrangements made if necessary).

To make sure you continue to meet your regulatory obligations, you should think about employees who are working from home during the pandemic.

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Do I need to file my company accounts?

Answered March 30 2020

Companies House has granted companies who have been directly affected by Covid–19 the option to apply for a three-month extension for filing their accounts.

As part of the agreed measures, those citing issues around Covid-19 will be automatically and immediately granted an extension. To make the situation even simpler, companies can apply for the extension online, via a fast track system, taking up only 15 minutes of their time.

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How will the three-month suspension of wrongful trading provisions affect me?

Answered March 31 2020

The proposed three-month suspension of wrongful trading provisions, once the same is actually enacted, is proposed to effect from March 3, aiming to reassure directors and give confidence that they have time to explore government funding packages before immediately resorting to insolvency. Both the detail and the legislation itself are currently awaited.

Wrongful trading occurs when the company has no reasonable prospect of avoiding insolvent liquidation and trades to the detriment of creditors. The “blue sky” test (a common law defence to wrongful trading) has long been used to excuse directors where they have a reasonable belief that the company can continue to trade and will trade out of its difficulties. It would be difficult to find a better example of this test in operation than the current circumstances.

However, this does not mean directors can do what they want as there are many other duties to consider and even the risk that if you were to knowingly abuse this proposed suspension, there still remains the risk of fraudulent trading.

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What should I do if I am, or may be, trading whilst insolvent?

Answered March 31 2020

  • Take all possible steps to avoid loss to the company’s creditors
  • Take independent legal and financial advice on your duties as a director and government funding packages available
  • Keep up to date financial information and cash flow forecasts
  • Consider carefully the government funding options and the company’s eligibility
  • Hold regular board meetings and keep records of decision making with board minutes and resolutions – the government proposals also include provisions for greater flexibility where companies are required to hold Annual General Meetings (AGMs), including holding them online
  • Coordinate with key stakeholders, in particular existing lenders and HMRC, where an event of default is likely to occur
  • Manage your supply chain effectively and monitor the status and availability of employees, customers and suppliers.

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How careful do we need to be about documenting the decisions we come to as directors?

Answered April 1 2020

We recommend that directors should take extra care to ensure that they hold meetings as required by terms of articles of association or shareholder agreements and that proper records (minutes) are taken and retained.

These should set out details of what has been discussed, what decisions were made and the reasons for those decisions. Particular care is needed where decisions are being made as to unusual requests for payment from suppliers, possible redundancies and cashflows. The Companies Act requires that copies of minutes should be kept for ten years – nothing has changed here.

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How can we hold board meetings if we’re not allowed to travel to and from the office or to meet?

Answered April 1 2020

It may well be that your articles of association already allow for board meetings to be held by telephone or other electronic means whereby participants can all see and/or hear each other (e.g. Zoom or Skype).

Even if your articles do not allow for virtual meetings, our view is that it is better to hold a board meeting via phone, Zoom or similar and to take minutes of that meeting, than to encourage or allow directors to make decisions without the involvement of the board and without ensuring that these decisions are properly minuted.

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Can I continue to pay myself dividends?

Answered April 1 2020

If the company can afford to, do pay, and providing all of the relevant formalities set out in the Companies Act 2006 are followed, then it should be fine to continue paying dividends. In the current climate, however, it is essential to ensure that any dividends are justified by relevant accounts which show sufficient distributable reserves, and that minutes are taken which show, among other things, that the board looked ahead to the future cash requirements of the business (to include contingent liabilities).

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Can shareholders vote electronically on written resolutions?

Answered April 1 2020

There are three steps involved here:

  • In order for the document to be sent to the shareholder by email, you will need their express consent to do so and an email address for that purpose.
  • The company may accept electronic signature of a written resolution, provided that the identity of the sender is either confirmed in a way specified by the company, or the sender identifies themselves and the company has no reason to doubt the authenticity of that statement.
  • A document can be sent electronically to a company only if either (a) the company has expressly agreed to documents of that type being sent in that form and supplied an email address for that purpose OR (b) the company is deemed to have so agreed (i.e. where electronic contact details are included in the resolution or in the accompanying documents, unless a contrary instruction is given).  If the company does not want to accept written resolutions by fax and/or email, this should be made clear in the explanatory notes to the written resolution.

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Can your statutory registers be held electronically?

Answered April 1 2020

Yes – registers may be kept in electronic form provided that they can be reproduced in hard copy format.

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With our workforce working from home, what are our data protection obligations?

Answered March 25 2020

The first step is to ensure that you have a remote working policy which will support your GDPR compliance. This can include measures in relation to how employer equipment is used and outline the staff members’ responsibilities when working from home, such as not leaving a computer or laptop unlocked when it is unattended.

There are some simple steps which will support that approach:

    • Prohibit data transfers to personal devices/ email accounts, as well as the use of personal email addresses. Personal email accounts are likely to be less secure than work-based accounts due to the lower levels of virus protection. One infected email can lead to a DP breach and cause network issues across your business.
    • Restrict access to sensitive personal data. A remote working policy can help clearly define which members of staff should have access to certain files.
    • Prohibit use of public Wi-Fi. Using unsecured systems like these can allow others to see emails, encrypted messages and login information.
    • Encrypt devices. Encryption software can be installed on an entire device or certain files.

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What health and safety obligations do companies have towards their employees?

Answered March 26 2020

As an employer, you have a duty to protect the health, safety and welfare of your employees and other people who might be affected by your business. But the duty is not absolute.  You must take all reasonably practicable measures to achieve this. You are effectively undertaking a risk assessment to control, so far as is reasonably practicable, any risks of harm, injury or health that could arise in the context of the workplace or through the operation of your business.

In the context of the Covid-19 outbreak, your risk assessment (which the law requires an employer to undertake) should carefully consider how to deal with the risk posed by infected (or potentially infected) employees and non-employees (such as contractors and visitors). If you were to knowingly allow an individual who has been advised to self-isolate to attend your premises or come into contact with others on your premises, you may be in breach of that duty, particularly where any of those other persons are more vulnerable to infection – for example, pregnant employees, or those with long-term/underlying health conditions. A breach of health and safety law is a criminal offence.

You should also carefully navigate communications with your staff about the Covid-19 outbreak. Under UK data protection law, personal data concerning health is ‘special category data’. This means you need to ensure that any communication does not include any data about, for example, an individual who is absent. It would be acceptable to let employees know that there has been a confirmed Covid-19 case within its workforce, but it would not be appropriate to provide any details from which the individual might be identified.

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What duties, and potential liability, do charity trustees have?

Answered April 3 2020

All trustees of charities are subject to statutory duties under the Charities Act 2011 but, in the context of potential insolvency, the trustees’ responsibilities vary depending on the legal status of the charity.

  • Charitable Trusts and Unincorporated Associations

These charities have no separate legal personality and therefore the trustees are liable for any debts or obligations they may incur. This liability is unlimited.

  • Companies and Charitable Incorporated Organisations (CIOs)

Many charities are set up as companies limited by guarantee. The charity trustees are the directors of the company. A company is a ‘corporate’ or ‘incorporated’ legal form and has its own separate legal personality, which means it can enter into contracts and other legal relationships in its own name. It is the company/charity, rather than the members or the directors/trustees, which is liable for the company’s debts.

A Charitable Incorporated Organisation is similar to a company. It has its own legal personality, so will be liable for its own debts. In most situations, its trustees will be protected from liability for debts.

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How can I become personally liable as a director of a charity or as a Trustee of a CIO?

Answered April 3 2020

Although they are not liable for the charities’ debts, director trustees of near insolvent charities (they may be insolvent on a cash flow basis even if the charity has a strong balance sheet basis) face potential personal liability for wrongful trading. This means allowing the charity to trade, after the date when the director trustee knew, or ought to have concluded, that there was no reasonable prospect that the company would avoid going into insolvent liquidation.

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How do care homes and residential settings meet their obligations to staff, residents and relatives?

Answered March 25 2020

If a member of staff is concerned that they have the virus, they must follow the NHS guidance. If they are advised to self-isolate at home, they should follow the Public Health England guidance. They should not visit or care for individuals until it is safe for them to do so.

You should review your visiting policy to minimise the risk of transmission, asking those who are unwell or suspect they have Covid-19 not to visit, and emphasise good hand hygiene for visitors. Contractors on site must be kept to a minimum.

You must implement isolation procedures when someone in the home is displaying symptoms of the virus, ideally in a single bedroom with en-suite facilities. You should follow the advice here.
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