Directors - Be Careful What You Sign!


15 January, 2008

The Court of Appeal recently handed down a decision which should convince directors to take great care when they sign contractual documents on behalf of their companies. If the contract contains a misrepresentation, they can be held personally liable for it by the courts.

Pauline Rigby, Business Law Specialist at local law firm Forbes Solicitors explains "Personal liability can arise where a director of a company makes a fraudulent misrepresentation on which another person relies and which induces that person to sign the contract. The fact that the contract may not benefit the director is not a defence.

In the case in point, a company entered into a contract to pay for goods it then received. A director of the company signed the contract knowing that the company was insolvent and would be unable to pay for the goods.

The Court of Appeal ruled that the director had made an implied misrepresentation to the supplier. Since he knew the goods would not be paid for, the Court found him personally liable for the sum owed, as a result of his deceit.

The message for directors is to be careful what you sign, 'Limited liability' may not be limited if the court decides that the director knew that the company could not meet its obligations. This could apply in a variety of instances, for example where the company enters into a long-term agreement such as a lease of new premises."

The Companies Act 2006 places a statutory burden on directors to adhere to certain standards and consider specifically the effects of their decisions in various ways. A part-time, non-executive or even 'shadow' director (one who has no official position in the company but whose decisions are normally followed) can be in the firing line when things go wrong just as surely as can the full-time working directors.

Experts from the specialist Business Law team at Forbes Solicitors have again joined together to present an uncomplicated overview of the areas businesses really need to know about regarding the Companies Act. The next event is being held on February 5th 2008 at Stanley House Hotel, this covers all the changes coming into effect in April 2008. Demand has been high for the event from businesses across Lancashire however there are a few remaining places. The breakfast seminar begins at 8.00am and will conclude at 10.00am. The cost of the seminar is £20 + VAT. To book a place or to receive further details please contact Helen Gorrell at Forbes Solicitors on 01254 222394 or email The third in the series of Companies Act seminars covering changes coming into effect in October 2008 will take place 21st May and 5th June 2008.


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