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Directors' duties in the zone of insolvency
This article looks at the principles that divide culpability and responsibility and how the directors should address potential liability.
Directors duties and liabilities are put under the spotlight in cases of financial distress. At the recent Parliamentary Inquiry into the collapse of Carillion, the outgoing Chairman said his responsibility was "full and complete, total - no question in my mind about that. Not necessarily culpability but full responsibility". He is right in drawing the distinction between culpability and responsibility, directors are always responsible, but culpability is a different matter in legal terms. What follows looks at the principles that divide the two and how the directors should address potential liability.
Directors are not generally personally liable for a company's debts and losses (unless they have given personal guarantees/indemnities). It is where they have acted improperly, negligently or in breach of their duties that culpability and the risk of personal liability arises.