If your company is struggling in the current

economic downturn and you are a director

of it there is a risk that you could be

exposed to a significant financial liability.

This may take place if you have given a

personal guarantee, traded wrongfully or

(perhaps just carelessly) have misapplied

funds. There is also the risk of being

disqualified from acting as a director.

Personal Guarantees

It is obvious if you have given a guarantee

for the liabilities of a company you may

incur personal liability under it.

Nevertheless, and perhaps all the more

so in the current harsh times as banks

seek extra security, many do take this

risk. If it is essential, do look carefully at

the applicable terms and do not accept

unlimited exposure. A spouse being

asked to give a joint guarantee should

insist on independent legal advice (as the

banks require).

Wrongful Trading

Section 214 of the Insolvency Act 1986

has the effect of making a director liable

to make a contribution to the company’s

Contents Insolvency – Potential PersonalLiability as a Director

Corporate & Commercial News Spring 2009

business view

assets on a liquidation if at some time

before its commencement he knew or

should have known that there was no

reasonable prospect that the company

would avoid insolvent liquidation. It is

not necessary to prove an intent to

defraud creditors, as is the case for

fraudulent trading.

The test of whether a director knew or

should have known that there was no

prospect that the company would avoid

insolvent liquidation is both objective and

subjective i.e. the courts look at the

directors knowledge and the knowledge

that a reasonable director would have in

1-2 Insolvency – Potential Personal

Liability as a Director

2 Late Filing Penalties

3 Does Your Website Need a Review?

4 Recent Cases

the same circumstances. Any director

liable for wrongful trading can be

ordered to make a contribution to the

assets of the company. The nature of the

contribution will be compensatory and

based on the losses suffered by creditors

as a result of the director’s conduct. The

ability to pay is not taken into account. In

addition to the contribution, payments in

respect of interest and of the costs of the

liquidator may be ordered.

Misfeasance

Section 212 of the Insolvency Act allows

the court to order the directors of a

company to contribute to its assets in the �

Does Your

Late Filing PenaltiesAs of 1 February 2009 new penalties will apply in respect of the late filing of

accounts as in the table below which sets out those for private companies:

Length of Period Standard Fine Fine if financial year began after

6 April 2008 and failure to comply

in previous year

Not more than 1 month £150 £300

More than 1 month but

not more than 3 months £375 £750

More than 3 months but

not more than 6 months £750 £1,500

More than 6 months £1,500 £3,000

If your business owns a website there

are a good number of legal issues that

you should consider. We set out below a

brief summary of the main ones.

Designing and Developing your Website

You should ensure that you have an

agreement in place with your website

designer so that it is clear who owns the

content of the website and the

underlying software. You will want to

ensure that you can operate and run the

website, and should have the ownership

transferred to you or have a licence

granted on satisfactory terms.

Privacy Policy

A privacy policy normally deals with data

protection issues including the obtaining

and use of personal data. In your privacy

policy you may deal with how you use the

personal data you collect and how your

customer may opt out of personal

information being used.

It is important that the existence of the

privacy policy is made known to your

customers and that they can easily

access it. It is normal for this to be

included either on the registration page

or as a footer on the website page.

Terms and Conditions

If you sell products on your website then

you should ensure that you have terms

and conditions in place which provide

contractual protection for you, such as

limitation and exclusion of liability. You

also need to ensure that you give all of

the information that you are required to

give by law.

�

Insolvency – Potential Personal Liability as a Director (continued)

event of liquidation if they have

misapplied, retained or become

accountable for its funds. Breaches of

trust or any other fiduciary duty owed are

covered, as also is if directors cause the

company to give a preference to a

particular creditor or to enter into a

transaction at an undervalue.

A director may also face personal liability

in negligence for breach of any of his

duties owed to the company and/or

criminal liability for theft of company

property or misappropriated funds.

Disqualification of directors

A director may be disqualified from acting

as a director under the Company

Directors Disqualification Act 1986

(“CDDA”) if he is found guilty of fraudulent

trading, wrongful trading or misfeasance.

Section 6 of the CDDA deals with

disqualification following the onset of

insolvency proceedings. Office holders

(i.e. administrators, receivers and

liquidators) are statutorily obliged to

report on the conduct of all past and

present directors of a company in respect

of which they have been appointed if they

are of the opinion that a particular

director’s conduct in relation to it makes

him unfit to be involved in the

management of other companies.

The courts regularly makes orders for

disqualification if satisfied that a person

is or was a director of a company which

became insolvent and is unfit to be

concerned in the management of a

company.

Once disqualified, a director cannot act as

a director of a company or be directly or

indirectly concerned in the management

of a company for a period fixed by the

courts. Contravention will render the

director liable to two years imprisonment

and/or a fine and/or personal liability for

the other company’s debts.

Our Insolvency Group are able to advise

and act for you if you are facing a

disqualification order, or if you have a

query regarding your liabilities as a

director. Please contact Caroline Leviss

on 01225 326796 or at crl@skslaw.co.uk

on the latter, or if it is regarding director

disqualification please contact Alice Wood

on 01225 324494 or at aew@skslaw.co.uk.

Website Need a Review?

The first thing that you need to do is to

ensure that your terms and conditions

form part of the contract between you and

your customer. The customer must be

given every opportunity to read and agree

your terms and conditions.

You should also be aware of the Distance

Selling Directive which sets standards

and includes selling over the internet.

The burden is on you to prove compliance.

It requires that you give customers

certain information before the contract is

formed, including the following:

� description of the goods supplied;

� all prices (inclusive of tax) to be paid;

� delivery costs;

� arrangements for payment;

� arrangements for delivery or

performance;

� cancellation rights.

Except for certain exempt contracts, you

must give your customers a right to

cancel the contract within seven business

days of receipt of the goods supplied. A

full refund must be given but you are

entitled to charge for the direct costs of

returning the goods. Unless you agree to

a shorter period of time, you must send

the order within a maximum of 30 days of

receiving the order from your customer.

If you are selling to consumers (rather

than businesses) your terms and

conditions should comply with the Unfair

Consumer Terms Act 1977, otherwise

they may be unenforceable.

There are also issues around choice of

law. You can include provisions in your

terms and conditions that the contract

will be governed by English law, but the

general position is that the applicable law

will be the law where that consumer is

based. This can pose problems of having

to comply with consumer protection laws

in other countries. Some website owners

seek to overcome this by limiting the use

of the website to people within their

countries of choice.

Links

It is common to have links to other

websites, but it can be difficult to control

other websites from linking to your own.

It is preferable to have linking licence

agreements in place so that you can

control the links as much as possible.

Intellectual Property

The content of websites often includes

photographs, music, graphics and text.

You may look to third parties to provide

this content. In such cases you need to

ensure that you have licences/permissions

in place as failing to do so could result in

a breach of copyright or trade mark

infringement.

“You should ensure that you have an agreement in place with your website designer so that it is

clear who owns the content of the website and the underlying software”

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Wellington House East RoadCambridge CB1 1BHTel. 01223 451070Fax. 01223 451100 © Stone King Sewell LLP 2009

www.skslaw.co.uk Stone King Sewell LLP - registered limited liability partnership no OC315280, registered office 13 Queen Square, Bath BA1 2HJ

Our policy when giving commentary and summarieson a non-specific basis is that we do not assume liabilityfor the accuracy of any particular statements.

Stone King Sewell has close links with a dozen European law firmsand with law firms in the USA, Canada, Australia, China, Mexico,Hong Kong, Singapore, Taiwan and Japan.

If you or a client would like to speak with us contact:

Roy Butler Partner email: rab@skslaw.co.ukLynne Rigg Associate email: lr@skslaw.co.ukCaroline Leviss Solicitor email: crl@skslaw.co.ukRachel Wooddisse Associate email: rw@skslaw.co.uk

email: corporate&commercial@skslaw.co.uk

No Tracing

If a company receiving money intended to

be held on trust in a special account pays

it instead into its deficit current account

the payer of the money is just an ordinary

unsecured creditor with no right allowing

it directly to recover the amount paid. This

shows the need to check that monies so

paid are properly held [Moriarty & Anr –v-

Atkinson & Others].

Mistaken Valuation

A surveyor valued the wrong property for

mortgage purposes. The Court of Appeal

held that even though the surveyor was

not negligent as such he had taken on a

clear and unqualified obligation to value a

specified property and was thereby in

breach of contract [Platform Funding Ltd

–v- Bank of Scotland].

Retention of Title

A company holding assets under financing

arrangements which had retention of title

provisions in favour of the lender sold

them to a third party. Again, it went to the

Court of Appeal, which decided that on the

exact wording title would pass to the

buyer as there is no inconsistency

between retention of title and an implied

or express right to sell in the absence of

terms to the contrary [Fairfax Gerrard

Holdings –v- Capital Bank].

Wembley Stadium

The well-known delay in construction

resulted in a large claim by the main

contractor (“M”) against the steelwork

contractor. The latter repudiated the

contract after M had decided to get the

steel working done by another

sub-contractor. It was held that M could

not claim for what that cost it as it had

gained financially for not paying the

original sub-contractor for that work and

its repudiation had not in itself caused

delay or loss of production [Multiplex

Constructions (UK) –v- Cleveland Bridge].

Not-For-Profit Brands

The registration of a trade mark can be

revoked if the mark is not genuinely used

in relation to the relevant goods or

services for a period of five years. Token

use, eg internally rather than in the

relevant mark consistent with the mark’s

essential function, will be ignored, though

the use need not be quantitatively

significant to be genuine. An Austrian

not-for-profit association did not sell

goods or services but used its mark on

badges, event invitations and material

advertising its activities. It was held that

commercialisation is not essential for a

trade mark to be protected [Radetsky

C-442/07].

Recent Cases