Minimizing the impact of company disputes with directors
September 14, 2020
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Dispute: Just the word can raise blood pressure, time starts vanishing into a black hole, the mind can be fully consumed by the dispute, whilst your energy ebbs away. But business disputes are part of the corporate life and if you have been blessed never to have one long live your reign. The reality is that most of us tend to have a dispute at some point over either suppliers’ lack of delivery and/or over invoices and payment. In terms of construction well what can I say, you will see or hear the word dispute and say adjudication this is part of our way of life.
Covid-19 has resulted in waves of disputes arising between companies, but let us fast forward into the not so distant future and ask ourselves what if the dispute that arises is against the director from the very Company they sit with. Post pandemic the board will inevitably take a review of all matters and ask questions, particularly if the company is making or has made significant losses that can lead them to believe that as a director you have not completed your duties. What steps can you undertake to ensure that you try and show that you have complied with your duties but also ensure you have an element of protection? Is this even possible? The answer in short is yes.
No one person can stop a company from bringing a claim against a director but what we can do and must do is ensure that we have documented the reasons for the decisions at the time and record those that have dissented in the decision-making process and why the decision that was made in the interest of the company. U turns are inevitable at times of great crises but particularly if the landscape is changing constantly in a terrain that is unchartered. This should not be feared but again an explanation and support of the board should be recorded. If there is no support, you must clearly show evidence within the minutes of why you are making that decision.
So, what must be your mindset during this turmoil, is to remind yourself you are a guardian of a baby (the Company/Organisation). Remind yourself that you are accountable for critical factors that affect the Company such as liquidity, governance and strategy – all of which you have to perform in line with the Company Articles, Statutory Duties and the Corporate Governance Code. The board will always define the boundaries of risk – ensure that these are always documented in board minutes. If you dissent from a decision but the board, ask you to deliver in any event you must document your dissent as this acts as evidence at a later stage. If you are not dissenting the process of the decision again should be documented ideally in minutes. The director’s authority often comes from the board and the executive management with a responsibility to the shareholders. It is likely that most decisions taken during these turbulent times are a risk that potentially could backfire, particularly as many businesses are pivoting to meet a brave new world. In short, the answer is you can protect yourself by documenting your decision-making process with the board within the minutes and ensure that you have complied with your duties at all times.
Disputes are going to happen against directors, there is an inevitability about it. What you can do is minimise the impact.