I’m not sure there’s been a culture change because I’m not convinced that there was necessarily anything that broken.
I think with the codification of directors duties in the Companies Act 2006, all directors stopped and thought again about how to be good directors and to promote the success of their company for their benefit of the members as a whole.
I’m not as convinced as perhaps some of our national press are that short-termism is such a problem.
If you look at the way a lot of directors remuneration packages for example are structured, there are longer term incentives and share schemes that require them to actually invest some time and effort going forward in their businesses.
There is a risk for directors personally that they could be found liable personally for their company's liabilities. Many directors aren’t aware of that. If they carry on trading in business beyond the point that they know or ought to know that it's not going to avoid insolvency, then a subsequently appointed liquidator could apply to court to have them found personally liable.
That is a big risk for directors and one that not many are aware of. Another thing for directors to watch out for when they have businesses that are in financial difficulty is the question of preferences.
So for example if they have given a personal guarantee to a bank, and they arrange, in the period leading up to the appointment of a liquidator or administrator for that loan to be repaid, so to take away their personal guarantee liability, then that's something that can be overturned by the liquidator of the company subsequently.
So they're not avoiding that liability. That also applies to director's loans account, if they have taken loans from the company... sorry if they have given loans to the company and either arranged for those to be repaid just before the company goes into liquidation or administration, then that's a transaction that can be overturned by the liquidator or administrator.
So that also applies where directors have given loans to their companies and in the period leading up to the company going into some form of insolvency process, whether that's administration or liquidation, they arrange for those loans to be repaid by the company to themselves. That's a transaction that a subsequently appointed liquidator would certainly seek to return and would be successful in doing so.
For more information on the personal liabilities of company directors as well as other types of risk, you can watch more videos from Henry Shinners here.