Director duties: A key area of focus in 2025

There’s little doubt that it remains a challenging landscape for businesses following a prolonged period of flat economic growth, significant increases in costs, and impending tax changes – not least the increase to employer national insurance contributions.

One trend the restructuring and insolvency team at Burness Paull has seen within this context is increased demand for advice around directors’ duties.

Boards are increasingly keen to understand their obligations in times of difficulty, which is no doubt in part due to the landmark ruling in the BHS directors’ duties case, which was handed down in June 2024.

The High Court ruled that Lennart Henningson and Dominic Chandler – who were both directors of the department store chain that collapsed in 2016, with the loss of 11,000 jobs and a £571m pensions shortfall – had breached their duties. Henningson and Chandler received record fines of £6.5m each and a joint and several fine of just over £110m.
Unsurprisingly, the personal liability and scale of the fines has increased directors’ focus on ensuring that they understand and comply with their duties when their companies face financial difficulty. 

The BHS case also clarified the rules around director obligations when their business is in, or on the cusp of, financial distress.

The case explored in further detail the rule that where a company reaches a certain extent of financial distress, the duties of directors shift so that they should prioritise the interests of creditors (rather than shareholders). Once this duty to creditors has been engaged, if the directors continue to trade (rather than commencing an insolvency process) without properly considering the interests of the creditors, this is now known as misfeasant trading.  This can attract personal liability for directors, which was the case for the £110 million fine given to the BHS directors.

The BHS case was a particularly egregious example of company directors failing in their duties and for engaged, proactive directors, it is unlikely to create a fundamental shift in behaviour. In the event of financial difficulty, directors still need to keep their financial position under close review, engage expert legal and financial advice in a timely manner, document all steps that are being taken, and show that you are actively considering the interests of the relevant stakeholders (shareholders in good times sliding towards creditors as the financial difficulties increase).  
But directors who bury their head in the sand and aren’t proactively managing financial difficulties may find themselves falling foul of their duties.

While it can be difficult when the business you are responsible for is in distress, directors who take advice, are aware of their duties and actively document following them should have nothing to worry about. Engaging early in dealing with financial difficulties may also result in a more positive outcome, as directors are more likely to have options in the early stages of financial difficulty rather than waiting until the point of no return to take action.

If you require advice around your duties as a company director and would like to speak with us, please don’t hesitate to get in touch.

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