Directors do not need to be Accountants
In the matter of Burnden Holdings (UK) Ltd v Fielding & Anor  EWHC 1566 (Ch) Mr Zacaroli when considering if a dividend was unlawful determined that Director liability was fault based and not one of strict liability.
A dividend cannot be paid out of capital and is unlawful if so done. If it is unlawful and the rationale for the rule is to protect creditors, then it is perhaps of concern if a Director could personally receive such monies, conceivably at the expense of creditors and not automatically be required to pay them back.
In considering the point about accounts from which it might be properly deduced that the company had sufficient distributable reserves to pay dividends, the Court held that Directors are not required to be accountants, being entitled to rely upon accountants to whom a company’s accounting functions may have been delegated.
… I conclude that the law on the issue whether liability is strict or fault-based remains the same as it was at the end of the 19th Century (as summarised in paragraph 139 above).Burnden Holdings (UK) Ltd v Fielding & Anor  EWHC 1566 (Ch)
I consider this to be consistent with first principles, so far as it applies to the payment of unlawful dividends. The question whether there are sufficient distributable profits may turn on fine questions of accounting judgment. Directors are not required to be accountants and the comments of Lord Davey and Lord Halsbury LC in Dovey v Cory as to directors being entitled to rely on the judgment of others whom they appoint to carry out specialist financial roles within the company are as pertinent today as when they were made in 1901.
The only modification to the position reached at the end of the 19th Century is as to the standard required of directors, which is as set out by Nelson J in Bairstow.
The Director’s Balance Sheet Declaration
Directors do not need to be accountants is all well and good but what does that position mean for their balance sheet declaration in the accounts that disclosed the distributable reserves if they can look to say that they were not ultimately responsible?
The balance sheet declaration is one by a Director on behalf of the Board as to the truth and fairness of the accounts. There is no statutory definition of that phrase. Some people have referred to the meaning as accounts prepared according to relevant accounting standards. I was taught that it could be said to mean that the accounts have been put together via deployment of accounting policies that are appropriate, adequately disclosed and consistently applied.
However taking the words in their ordinary meaning that I might apply, if the accounts are ‘true’ then presumably they are accurate. If the accounts are ‘fair’ then presumably they are not misleading. A combination of the two suggests to me that it is a declaration of reasonable accuracy and correctness of the accounts.
If a Director could conceivably avoid responsibility for the accounts by reliance upon a party to whom they have delegated the accounts preparation function and sign the balance sheet declaration without being required to know for themselves that it accurately reflected the assets and liabilities, then that might be of concern. In addition, there is the paradox that accountants instructed to prepare accounts may well expressly exclude responsibility for them. Indeed many an accountant’s report often refers to the accountant as someone who has prepared accounts in reliance upon the information and explanations of the Directors. If the Director has relied upon the accountant and the accountant has relied upon the Director, then who is responsible?
A balance sheet declaration ought presumably mean more than ‘The Directors are told by the bookkeeper that the accounts show a true and fair view‘?