The rapid downturn in the economy means company directors are faced with new challenges, possibly on a greater scale and more complex than ever before. Directors are responsible for managing the affairs of a company, identifying risk and ensuring that there is a strategy and a system in place to deal with those risks.
Weak and inadequate management by the directors may contribute to a weak financial performance and can lead to damage to business reputation, adverse media attention and damage to the business itself.
The following are some tips to assist directors to properly discharge their duties and responsibilities and reduce the risks of restriction or disqualification as a director and personal liability.
Meetings and Internal Procedures
Ensure that regular board meetings are held in particular to discuss the company's financial performance. All directors of the company should actively participate in these board meetings. Detailed minutes should be kept of all discussions in relation to the current state of the company's finances together with any suggestions proffered by directors as to how the company should deal with the situation. Every director should make it their business to be kept fully informed of all matters. While the Supreme Court has recently recognised a distinction between the nature and extent of a non-executive director's responsibility and that of an executive director, it has held that a non-executive director has a general overriding duty to supervise and control the affairs of a company. A non-executive director should therefore ensure that he has adequate and up to date information in relation to the financial affairs of the company. Ensure financial controls are in place and maintained, including the maintenance of proper accounting records. This helps to ensure that the company is not unnecessarily exposed to avoidable financial risks. Conduct a thorough evaluation of the nature and extent of the risks to which the company is exposed. Design a structure and implement a system to manage these risks and minimise liability. Consider establishing a dedicated risk management committee and review risk management regularly at full board meetings. Professional Advice If the directors are of the opinion that the company is in financial difficulty which may ultimately lead to the company being wound up, they should immediately seek professional advice, legal and financial. The indicators of financial difficulty will...