COL_1F Personal liability of directors, management and shareholder A director of a company is liable for any loss, damages or costs sustained by the company as a direct or indirect consequence of the director: - having agreed to the carrying on of the company’s business despite knowing that it was being conducted in a manner that would be regarded as reckless trading 1; or being party to an act or omission by the company despite knowing that the act or omission was calculated to defraud a company creditor, employee or shareholder, or had another fraudulent purpose. Situations where a director may be considered personally liable for the actions of the company include: - Being party to acts/omissions which defraud creditors, employees or shareholders as well as other fraudulent acts. - Signing/approving false or misleading financial statements or prospectus. - Failed to vote against a prohibited act where the director: - was present at a meeting, or participated; and - was aware provisions of the Act were not complied with, meaning that the person either had actual knowledge of the matter or should have investigated the matter, any other measures that would reasonably be expected to have provided the director with necessary knowledge. - Makes a fraudulent or negligent misrepresentation while negotiating a contract between the company and the third party. - With the intention of making a gain or causing loss or risk of loss to another person: o Dishonestly making a representation which is untrue or misleading, where the person making it knows that it is, or might be, untrue or misleading. o Dishonestly failing to disclose to another person information which he is under a legal duty to disclose. - Under a contract if he fails to make it clear that he is contracting as an agent of the company and not personally. However, the Companies Act states that in any proceedings against a director, other than for willful misconduct or willful breach of trust, the court may relieve the director, either wholly or in part, from any liability, or on any terms the court considers just, if it appears to the court that the director has acted honestly and reasonably, or having regard to all the circumstances of the case, including those connected with the appointment of the director, it would be fair to excuse the director. 1 A company is deemed to trade recklessly when it does not pass the solvency and liquidity test
