Partner Article

Ignorance is no defence for uninformed company directors

COMPANY directors have been warned that ignorance of the truth is no defence when a case comes to court.

A recent High Court ruling held that a company director be jointly liable for a fellow director’s unauthorised financial actions.

And the fact that he had placed trust in the other director for the company’s financial affairs did not excuse him.

“What this latest ruling demonstrates very clearly is that taking on a directorship is not a decision that should be taken lightly,” said Adrian Graham, a director of Sheffield business turnaround and insolvency practice Graywoods.

“Directors should always be aware of their duties and have a full understanding of the responsibilities and conduct of their fellow directors because, as this case proves, there is no room for passing the buck.

“The fact that one director might be responsible for financial affairs does not absolve the other directors from having a firm grasp of all areas of the business and this case is a timely reminder and warning to all directors to remember their duties.

“They should at least be able to demonstrate that the financial information they receive is correct and that they have an active part to play in the decision making process in such areas as managing accounts and cash flow predictions.

“This one case shows that ignorance is not always bliss and certainly not a viable approach to business success.”

This was posted in Bdaily's Members' News section by John Highfield .