What is a director’s primary responsibility if a company is in financial difficulties?
Generally, when a company is solvent, the primary responsibility of its directors is to act in good faith in the best interests of the company and this duty is generally construed as a duty to act in the best interest of the shareholders. Directors also have responsibilities to employees and others with whom they deal. However, if the company is insolvent (or likely to become insolvent) then they may also owe duties to the creditors. These duties are owed by all directors, non-executive as well as executive. Indeed, the fact that some directors may have been appointed to protect the interests of a particular shareholder does not absolve them from their general fiduciary duty to act in the interests of the creditors if the company is insolvent or close to insolvency. Generally there are two broad tests of insolvency. A company is typically insolvent if either: • its liabilities (including its contingent and prospective liabilities) exceed its assets (the ‘balance sheet test’); or • it i
