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Responsibilities of a resigned Ltd company Director

Discussion in 'Legal' started by nickbarker26, Apr 7, 2009.

  1. nickbarker26

    nickbarker26 UKBF Newcomer Free Member

    Posts: 9 Likes: 0
    Hi All,

    I ran a Limited company in Leeds for a year with 2 other directors all with equal share and I was the company secretary. We had no official partnership or director contracts as everything was done on trust. After a short while it became apparent that our views in the future directions of the company were quite different, I decided that I wanted out and to start my own small business and so did another of the directors (not together). Everything was done amicably and I and another director resigned I also resigned as a secretary, and we also did so officially by filing the forms at companies house 4 months ago. (I believe that company law has changed and now limited companies no longer require a secretary, hence companies house allowing me as director and secretary to resign)

    The remaining director continued with the business albeit with few sales due to the downturn in the economy. The company now has some unpaid and outstanding debts and the remaining director apparently has had a court summons to explain the company’s activities, I am a little worried as the way that I found out about his court summons was a heated telephone call from her stating that I too was going to be held responsible since I was previously director and secretary.

    I am willing to help and do anything that is within my power, but only within reason and within the law. If it involves me having to take some liability for the debt then what am I liable for? The percentage share that I previously had? How protected or unprotected am I on this matter? I really don’t want to go through all the legal routes as I thought that we’d settled everything amicably when we all parted, but it seems that the remaining director has had a change of heart amidst the chaos of the downturn in business adn the fact that she has had a summon to court.

    I have not personally guaranteed anything on the company nor has the other resigned director, where do I stand on this? Can I legally be held responsible for her actions?

    Thank you all in advance for any advice.
  2. cjd

    cjd UKBF Regular Full Member - Verified Business

    Posts: 14,052 Likes: 2,664
    The point of a Limited company is to seperate its directors legally from it. The company owes the money not the Directors so unless you have been negligent or behaved illegally or have given personal guarantees you should be ok.

    BUT you need proper legal advice from someone who can look at the paperwork and hear the full story. A good solicitor that specialises in company law will give you a free hearing and then advise you properly.
  3. nickbarker26

    nickbarker26 UKBF Newcomer Free Member

    Posts: 9 Likes: 0
    Thanks CJD, when you say 'negligent or behaved illegally', can this also include the remaining director not paying the debts of the company and essentially ignoring creditors? As I believe this is what she has done to get to the point of the court summons, I don't want her actions to affect my standing of a credit worthy individual, she seems to think that the summosn she has, has told her that the other 2 (resigned) directors may also be liable.
  4. cjd

    cjd UKBF Regular Full Member - Verified Business

    Posts: 14,052 Likes: 2,664
    You can't be held legally responsible for actions after your resignation from the company unless someone could prove that your prior involvement was a cause and that your actions (or inactions) were negligent or illegal. As a Director you have a duty of care to the company.

    Resigning from a company does not protect you from your acts whilst you were still a director but you can't be held responsible for anything that the other Director did after you had left unless she could implicate you in some way.

    But I am not a lawyer - you need a real legal opinion.
  5. nickbarker26

    nickbarker26 UKBF Newcomer Free Member

    Posts: 9 Likes: 0
    I see, it makes sense, Thanks CJD. Are there any legal bods in the room that would also like to comment?
  6. JGOffshore

    JGOffshore UKBF Contributor Free Member

    Posts: 423 Likes: 82
    As has been stated your resignation doesn't mean that you can't be questioned or held liable for the management of the company whilst you were a director.

    You don't state what sort of court summons this is. However two fairly common instances are where a company has gone into liquidation or where a creditor is claiming that a contract was improperly or illegally entered into. For example, where an order for goods or property needed board approval was it given. If so where are the minutes. I have also come across situations where a director of a company has sent a letter ordering goods or services but because they didn't sign the letter "for and on behalf of .... Limited" or made it clear that they were ordering on behalf of the company, that the courts have made them personally liable for the debt.

    I have also come across an occasion where because a letterhead or order form didn't have the correct company registration number on it (printing error) the director was held personally liable.

    It does sound as if the creditor is trying to hold the director or directors liable and this is something you should really take advice on, either from an accountant or a lawyer. Don't ignore it.
    Last edited: Apr 7, 2009
  7. nickbarker26

    nickbarker26 UKBF Newcomer Free Member

    Posts: 9 Likes: 0
    Thanks JGOffshore. Very interesting case studies.

    I was aware that my resignation wasn't going to be the end of my liability for the management of the company whilst I was there.

    I believe that the court summons was for a non-payment of recruitment services, which I wasn't aware of why she needed recruitment in the first place as the company is only very small.

    I was always the individual in charge of the back end systems and IT infrastructure and I have not been aware of any operation activities particularly not recruitment, for sucha small company there was no need to go to a recruitment specialist. So I'm not sure what she was thinking.

    As all the court summons, paperwork etc was not addressed to me, and as I am no longer an officer or employee of the company I can not gain any access to more information, I am just taking some preventative measures/research in case it comes to that.

    Is there anything more I can do?
  8. JGOffshore

    JGOffshore UKBF Contributor Free Member

    Posts: 423 Likes: 82
    Well if you have not had a summons there is no need for you to attend. However if the existing director is saying that you are liable in some way then write (and I do mean write) and request a copy of all documentation and correspondence relating to the matter. You have that right as a director who could be held liable certainly with 12 months of resignation and potentially for longer. If she won't give the information tell her you will contact the creditor. See what she says.
  9. Skillo 2010

    Skillo 2010 Guest

    Posts: 2 Likes: 0
    A building company working for me went bust, the director and secretary resigned, did not tell me. They tried to carry on working as if there was nothing wrong then fled when the creditors got wind of it. What are my obligations, I paid them more than needed and they did not complete the work, failed to follow drawings, so I had to terminate 11 days after the resignations. Any ideas, kind of been dragging on, no money left in their account and I paid enough to clear all their creditors even the ones that did not concern me (their bank, hector). I would appreciate your take on this one PG
  10. Daviea_79

    Daviea_79 UKBF Newcomer Free Member

    Posts: 10 Likes: 0
    I got caught for a directors guarantee four years after I ceased being a director. Whay was that if I'm only liable for 12 months:|
  11. JGOffshore

    JGOffshore UKBF Contributor Free Member

    Posts: 423 Likes: 82
    When a lender such as a bank asks for a guarantee from the directors of a company they are asking for the directors in office at the time the loan is agreed to guarantee the loan. Those guarantees are given in a personal capacity. If you later cease to be a director for any reason that does not automatically release you from the guarantee. You would have to specifically negotiate a release from the bank. (I'm using "bank" here but it could be any other entity which has insisted on a guarantee.)

    Look at it from their point of view. They probably checked the credit worthiness and net worth of the directors before agreeing the loan/overdraft/mortgage and let's say you were the richest of the directors. If you resign they have lost their safety net.

    Any director who leaves a company must ensure they deal with any such matter. It is separate from their legal duties as a director - it is a private liability.