UK business directors are being warned they could find themselves liable if they do not get up to speed with new legislation coming into force on 1 October of this year.

The Companies Act 2006, will introduce sweeping changes designed to simplify and improve present law. However, it will also created new detailed obligations for directors, putting duties previously developed in case law, into writing.

Chris Jones, a Partner in the insolvency and recoveries team at Irwin Mitchell, warned that it is in a director’s best interests to prepare for the change. He said: “If directors fail to meet their obligations they may well find themselves personally liable for any adverse consequences suffered by the company’s various stakeholders.”

The Act will require directors to act in a way that they consider most likely to promote the success of their company, including taking into account long-term consequences of their decisions, and maintaining a reputation for high standards of business conduct.

Directors will also have to account for the impact of company operations on the community and environment. For example, if a business is forced to make redundancies, it must be able to show that it considered the full effect on the community, or face legal consequences.

However, Mr Jones was keen to point out the new legislation does bring uncertainty in some areas. He said: “Exactly how businesses will have to operate in some respects is still pretty uncertain and is only likely to be shaped by cases brought after the act comes in.

“In the meantime, directors will need to make good faith judgements regarding issues governed by the new legislation and if in doubt, take professional advice,” he added

Mr Jones advised that businesses should prepare for the legislation by reviewing their processes, procedures and policies, and record the reasons behind decisions, showing that each decision had been made in light of their statutory obligations.

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