Insolvency procedures: What Directors must and must not do. Part 2
As we will see over the next few weeks there are various ways in which a directors can be held to account both for the way they respond to the insolvency of a company, and what they actually do before the company becomes insolvent.
Directors have a number of duties and responsibilities as part of running a company. Those will be more fully analysed in later Friday articles. Directors can be held to account for their failings. Thus for example if a director breaches a duty to the company or commits a wrong against the company which is legally actionable, then the company can pursue the director. To take a simple example, if the director who can access the company's bank accounts wrongly takes £50,000 out of the company (e.g. by stealing it or by otherwise taking it out) then the company can sue the director for the return of that money. (This is quite apart from any criminal proceedings which could be brought). Once the company is in liquidation then the liquidator will be able to cause the company to take those steps which are necessary to enforce its rights and protect its position.It must be remembered in this context that a company is different from the people who own it. Even if one person owns all the shares in the company and is the only director, the money of the company is not that person's money. There are various advantages to having a limited liability company. One is the limitation of liability. If you set up a company and trade through the company, then if the company becomes insolvent you lose the money you have put into the company, but (unless you have committed a wrongful act which you can personally be held responsible for) you do not lose anything else. If you were trading as an individual all of your assets would be on the line if your business got into trouble. There is also a different taxation regime for companies. Therefore if you want to take advantage of these benefits, you cannot just treat the company as your personal piggy bank. If therefore money goes into the company, it can only go out of the company in a proper fashion. It cannot be taken out as if it were your money, without that being pursuant to some form of legitimate arrangement.
What this means in practice is that it is possible to steal from a company even if you own all of the shares in the company and are the only director. Theft is dishonestly appropriating property belonging to another. Money is property for this purpose. Whether someone has behaved dishonestly depends upon their state of mind in the relevant circumstances, but for the purpose of the law of theft even if you completely own a company, the property is still the company's and therefore is property belonging to another for a theft charge.
Quite apart from the ordinary rights the company has which a liquidator can enforce, there are various other statutory remedies available for a liquidator. We will start to look at those in next week's article.