The role of directors in companies
The following post has two assignments namely;
1.The role of directors in companies
Respond to DISCUSIION below by: • Ask a probing question. • Share an insight from having read the discussion. • Offer and support an opinion. • Validate an idea with your own experience. • Make a
suggestion. • Expand on the discussion.
The role of directors in companies is incredibly important for many reasons. The Companies Act 2006 provides that directors must act in the way that they consider, ‘in good faith, would be most
likely to promote the success of the company for the benefit of its members as a whole’ and then it provides that directors are to have regard for certain factors such as the likely consequences of
their decisions in the long term[i].
Section 117 inserts ss.246ZA-246ZC into the Insolvency Act 1986 (“IA 1986”) to empower an administrator to bring a claim for fraudulent trading (s.246ZA) or wrongful trading (s.246ZB) and makes
consequential amendments to IA 1986 s.214[ii]. The amendments include insertion of a new definition of when a company enters insolvent administration, necessary for the new claim of wrongful
trading only applying when a company enters insolvent administration, “if it enters administration at a time when its assets are insufficient for the payment of its debts and other liabilities and
the expenses of the administration[iii]
In accordance with “Small Business, Enterprise and Employment Act 2015[iv], wrongful trading (246ZB): administration subject to subsection (3), if while a company is in administration it appears
that subsection (2) applies in relation to a person who is or has been a director of the company, the court, on the application of the administrator, may declare that that person is to be liable to
make such contribution (if any) to the company’s assets as the court thinks proper[v].
In essence, this provision states that if directors know or ought to conclude that there was no reasonable prospect of the company avoiding going into insolvent liquidation, then unless they take
every step to minimize the potential loss to creditors, they will be personally liable to contribute to the company’s losses if the company does end up in insolvent liquidation[vi].
But section 214 of IA also provides for defense for directors, a director will not be liable to contribute under section 214 if the court is satisfied that he ‘took every step with a view to
minimizing the potential loss to the company’s creditors as . . . he ought to have taken’. This is a demanding test, particularly as it does not contain any provision which limits the director’s
obligation merely to take reasonable steps to avoid loss to creditors. On the facts of Re Produce Marketing Consortium Ltd, there was simply no basis on which such a defense could be argued as the
court found that the directors continued to trade at a time when they ought to have appreciated that the company could not avoid going into insolvent liquidation and would not be in a position to
pay its creditors[vii].
In conclusion, we see that latest changes of the law in relation to insolvency ensure that directors cannot escape liability for misconduct when a company is insolvent. The insolvency regime
includes a special procedure\requirements which consider interests of all stakeholders in accordance with applicable law.
2. Oral Presentation – Marketing Plan Pitch Presentation
Create a (5 minute) Video presentation where you pitch a marketing initiative to the board. This is a professional presentation as a “pitch” to the client to obtain acceptance of the new strategic
marketing initiative that you have identified for your chosen company (refer to Assignment 1 – Coles Environmental Analysis). Essentially, the Environmental Analysis (Assignment 1 – Coles
Environmental Analysis) is a written report, whereas the presentation is taking the essence of this report as a pitch to the CEO of your company, to persuade them to adopt your initiative.