WOW! - Are you exercising independent judgment?

Back in October, we highlighted the importance of directors being aware of their duties to the company and the risks that they take if they do not.

A recent case in the High Court has again emphasised the importance of a director's duties, specifically to exercise independent judgement. This duty requires a director to exercise their powers independently, and which was an important part of this case, to exercise independent judgment in deciding whether to follow advice that has been provided to them.

The facts of the case were that WOW Internet Limited entered into liquidation in July 2014 with a Ms Sharma appointed as the liquidator. During the liquidation process, there were no returns made to the creditors and steps were taken to dissolve the company. In an unrelated matter, Ms Sharma was found guilty of breaches of duty and ultimately new insolvency practitioners took over and the company was restored. An investigation by the new insolvency practitioners into the company found several payments which could not be explained. The director of WOW tried to justify the expenditure, but was unable to support his position by reference to any documents.

The Court held that the director had to repay the full expenditure, being £52,413, and accepted that the director had failed to properly maintain company books and records in accordance with section 386 of the Companies Act 2006.

It is important that directors are aware of their duties, and it is recommended they seek out advice from professionals where appropriate. However, as the judge in this case highlighted, this advice should not be followed blindly, and directors must apply independent judgment as to whether to follow that advice to avoid a potential breach.

This case shows that a breach of a directors' duty can be costly, and it is important that all directors of a company are briefed on their duties.