MPs have this week criticised the Directors of Carillion which collapsed in January, with debts of £1.5Billion. They’ve accused the Directors of putting their own salaries and bonuses ahead of the protection of the Company pension scheme, amongst other things, and of hiding the reality of the financial position from shareholders. This goes against the predetermined Directors’ Responsibilities which are clearly documented and which MUST take precedence.

What are Director’s Responsibilities?

As a separate legal entity, a Company will survive beyond the lifespan of its Directors and owners. When accepting the appointment as a Director, there are certain obligations that are also accepted, and which should not be taken lightly. These include the following:

• follow the company’s rules, shown in its articles of association
• keep company records and report changes
• file your accounts and your Company Tax Return
• tell other shareholders if you might personally benefit from a transaction the company makes
• pay Corporation Tax
• register for Self Assessment and send a personal Self Assessment tax return every year

The key to the problem for the Carillion Directors though, is the requirement under the Companies Act that Directors avoid any conflict of interest, which means they must put the interests of the Company ahead of their own. It is this point on which they are receiving criticism, given that there are reports of them claiming large bonuses and salaries whilst contriving to hide the perilous position of the company from shareholders.

What will happen to the Directors?

The penalties can be severe if they’re found not to have met their Directors’ Responsibilities; they can be fined, prosecuted or disqualified for up to 15 years. The latter prevents them from taking office as a Director of any company with connections to the UK during that time, but also from being involved in forming, marketing or running a company too. Cynics may say that they won’t need to do very much in the future, having ensured they’ve earned enough over recent years, but the potential prosecution may be another consideration entirely!

If you’d like to see more, the original news item from BBC News is here.

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