Part F Management, administration and regulation of companies 18: Company directors 289
9.8 Examples of remedies against directors
Remedies against directors for breach of duties include accounting to the company for a personal gain,
indemnifying the company, and rescission of contracts made with the company.
The type of remedy varies with the breach of duty.
(a) The director may have to account for a personal gain.
(b) They may have to indemnify the company against loss caused by their negligence such as an
unlawful transaction which they approved.
(c) If they contract with the company in a conflict of interest the contract may be rescinded by the
company. However under common law rules the company cannot both affirm the contract and
recover the director's profit.
(d) The court may declare that a transaction is ultra vires or unlawful.
A company may, either by its articles or by passing a resolution in general meeting, authorise or ratify
the conduct of directors in breach of duty. There are some limits on the power of members in general
meeting to sanction a breach of duty by directors or to release them from their strict obligations.
(a) If the directors defraud the company and vote in general meeting to approve their own fraud, their
votes are invalid.
(b) If the directors allot shares to alter the balance of votes in a general meeting the votes attached to
those shares may not be cast to support a resolution approving the issue.
9.9 Directors' liability for acts of other directors
A director is not liable for acts of fellow directors. However if they become aware of serious breaches of
duty by other directors, they may have a duty to inform members of them or to take control of assets of
the company without having proper delegated authority to do so.
In such cases the director is liable for their own negligence in what they allow to happen and not directly
for the misconduct of the other directors.
9.10 Directors' personal liability
As a general rule a director has no personal liability for the debts of the company. But there are certain
exceptions.
Personal liability may arise by lifting the veil of incorporation.
A limited company may by its articles or by special resolution provide that its directors shall have
unlimited liability for its debts.
A director may be liable to the company's creditors in certain circumstances.
In cases of fraudulent or wrongful trading liquidators can apply to the court for an order that those
responsible (usually the directors) are liable to repay all or some specified part of the company's debts.
Can a director be held personally liable for negligent advice given by their company? The case below
shows that they can, but only when they assume responsibility in a personal capacity for advice given,
rather than simply giving advice in their capacity as a director.
Williams and Another v Natural Life Health Foods Ltd 1998
The facts: The director was sued personally by claimants who claimed they were misled by the company's
brochure. The director helped prepare the brochure, and the brochure described him as the source of the
company's expertise. The claimants did not however deal with the director but with other employees.
Decision: The House of Lords overruled the Court of Appeal, and ruled that the director was not personally
liable. In order to have been liable, there would have had to have been evidence that the director had
assumed personal responsibility. Merely acting as a director and advertising his earlier experience did not
amount to assumption of personal liability.