UK: The Liabilities Of Directors And Officers

Last Updated: 19 February 1998

A Company does not make decisions. It appoints a Board of Directors, Officers and Managers to make decisions on its behalf. In making these decisions the Directors and Officers not only place the company at risk from actions by an aggrieved party, they also place themselves personally at risk.

A Director's personal liability is unlimited. All his assets are at risk. Unlike the Company, he cannot hide behind limited liability.

Directors are jointly and severally liable. The actions of one Director are the legal responsibility of his fellow Directors.

It is the Directors who manage the assets and control the Company's day to day affairs. They act as trustees of the Company's assets and because they determine the activities of the Company they have a legal obligation to ensure that their actions are bona fide and for the benefit of the Company.

Directors are liable personally to pay losses suffered by the Company following an act which is either illegal, outside the Company's authority, beyond their power, or which evidences insufficient skill and care in managing the Company's affairs.


A Director or Officer is liable in the event of a breach of:

i) fiduciary duty to the company

ii) duty of skill and care to the company

iii) contract

iv) statutory duty

v) duty to shareholders

vi) common law


Directors and Officers are particularly exposed to claims when serving in Companies which:

  • are publicly quoted
  • have subsidiaries with outside shareholders
  • are involved in joint ventures

Their exposure increases still further when their Company:

  • publicly raises additional capital
  • arranges a private placement of debt or equity
  • acquires new entities
  • sells all or part of any subsidiary
  • merges itself or any subsidiary
  • undertakes any major restructuring


The risk of litigation against Directors increases still further when the Company accesses international capital markets, particularly in the USA, by means of

Private Offerings

Whether these are by a private placement, or by a private placement under Rule 144 (A) or by a debt/bond issue, the Directors are exposed both to claims from investors who are prone to litigate and from the dangers and uncertainties inherent in USA litigation.

Public Offerings

Here the dangers of litigation increase dramatically whether the Company is seeking a full US exchange listing, or arranging a sponsored ADR programme, or an unsponsored ADR programme.

All of these transactions require the Directors and Officers to comply with the full registration and reporting procedures imposed by The Securities Act of 1933 and The Securities and Exchange Act of 1934. The obligations imposed by these Acts are extremely onerous.

The legal environment surrounding such transactions is characterised by:

  • a very high duty of care imposed on the Directors and Officers
  • a minimal burden of proof for litigants
  • the common occurrence of costly class actions being brought by professional plaintiff attorneys

The keystone of The Securities Act is 'disclosure'. A Director or Officer is held liable for any material misrepresentation or omission in the registration statement of a Company seeking to raise capital.

Under The Securities Act, damages awarded to litigants are based on the difference between the value of the litigant's shares at the time of the public offering and the value of the same shares at the time the suit is filed.

Under The Exchange Act, damages are calculated on the difference in the declared value of the investment at the time of the public offering as against its actual value at the same time.

The burden of proof placed on litigants is such that they are not even required to show that at the time of making their investment they relied on the information which they now claim to be inaccurate! For a suit to be successful, there is no need even to prove that a loss was suffered or that there was intent to defraud!

To further compound the dangers of litigation to Directors of Companies subject to SEC regulations a recent court ruling allowed a European Company to be sued in the USA by another European Company simply because the defendant Company had arranged an ADR programme in the USA. The litigation was successful despite the fact that the litigant had acquired their equity not through such ADR programme, but directly on a local non-USA stock exchange.

Another high risk area is when foreign investors acquire equity in the Company, whether this is directly in the holding company or in a subsidiary company.

Finally, a significant area of risk is where the Company internationalises its business by:

  • opening branches/subsidiaries overseas, particularly in the USA
  • entering into strategic alliances with overseas companies, particularly in the USA
  • establishing relationships with non-domestic clients, again, particularly in the USA


1. The Company - for actions which are in breach of the Director's and Officer's duty to the Company. If the Company fails to take action then a minority shareholder may enforce the Company's rights by an action on behalf of himself and all other shareholders. This is known as a Derivative action.

2. Shareholders - they may bring an action in their own names if their rights have been injured. This injury may arise if a Director is negligent when acting as an agent for a shareholder or where the loss is suffered as a result of a misstatement in a company prospectus, as well as in circumstances mentioned in 1. above.

3. Employees - for wrongful dismissal or discrimination.

4. Governmental or Regulatory Authorities - for breach of regulations.

5. The Official Receiver - in all types of winding up actions he may apply for permission to examine the conduct of Directors and Officers, both past and present, and pursue litigation against them.

6. The Company Liquidator - as in the case of the Official Receiver, a Liquidator may bring an action against the Directors and Officers.

7. Creditors - in the event of a Company going into liquidation and/or failing to pay its creditors, they may bring an action against any or all of the Directors, both past and present.

8. Others - Anyone suffering a loss as a result of a breach of warranty of authority to contract on the Company's behalf. Also third parties dealing with a Director or Officer without the knowledge that he is acting only as a company agent, may sue the Director or Officer for any loss which has been sustained.


There is an increasing tendency on the part of those who suffer loss to seek redress by litigation. Investors, creditors, banks and customers are no longer prepared to write off losses simply because a Company suffers financial difficulty. More and more frequently they demand reimbursement from the Directors who run the company.

In a recent survey of over 500 shareholder class actions, the average settlement cost was in excess of US $8 million.

In most of these cases the legal action was settled out of court. The settlement and defence costs of those actions which proceeded to court were on average US $20 million.

These sums indicate that if a Director or Officer is forced into litigation without the protection of a Directors and Officers Liability Policy he is likely to be bankrupted.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.