Can You Be Personally Liable When You Sign Documents As Director? This depends upon what it is you sign as Director of a limited company.
A director of a company will sign many documents during the lifetime of a company but how many people actually read what they are signing and take on board the legal ramifications?
The separation between a Director and a limited company as a separate legal person should suggest that the answer to the question is that you ought not to be liable as a Director when you sign things on the company’s behalf. But matters can be a little more complicated, otherwise, for example, our article What Is Limited Liability Of A Company? would have been very short indeed! As a general rule, you will not have personal liability.
Let’s however have a look at a number of documents that directors of companies will sign on a routine basis and consider what they say, together with the wider implications which can arise.
Balance Sheet In The Annual Accounts
Books And Records Balance Sheet Declaration
Above is an extract from a Balance Sheet filed at Companies House. An example of part of it to take careful note of for example only, is item “c.”:
The directors acknowledge their responsibilities for complying with the requirements of the Act with respect to accounting records and the preparation of accounts.
However, it is when you turn to the consequence of not complying with the requirement to keep proper books and accounting records that matters arguably get more interesting. The reason is that the penalty for non-compliance by virtue of Section 387 of the Companies Act 2006 is potentially serious.
Section 387 of the Companies Act 2006 says that a person guilty of an offence of failing to comply with the duty to keep accounting records means that they are liable on conviction and on indictment, to being imprisoned. Furthermore, it is also said that such a person can be fined in relation to this contravention of the requirement to keep accounting records.
Burden Is On The Director To Justify Receipt Of Company Money
If a Director receives money or property of a limited company and they are unable to justify receipt of the same, if the company goes into insolvent liquidation and the matter is challenged after an investigation by the Liquidator, the burden of Proof is with the director to show that everything is proper. Such a Director could be called upon to repay this money to the limited company.
It is therefore directly relevant that when you as a Director of a company are signing a balance sheet for a set of annual accounts, you carefully consider that in doing so you are declaring and publicising (given a set of annual accounts becomes a matter of public record when they are published at Companies House), that the company has maintained the proper books, papers and records as required by the Companies Act 2006.
You ought to be aware that you are unable to change the wording of what you are signing when you sign such a declaration on the balance sheet of a limited company. This is a year on year requirement. It is a mandatory requirement of a set of annually filed statutory accounts.
Wrongful Trading As A Director
If for example, you have signed a balance sheet showing the company was insolvent based on its assets being exceeded by its liabilities and you continued to trade thereafter, it is possible that signature could be in effect used in evidence against you.
The reason is that having signed the balance sheet you are taken to know the financial position of the company at a given date. If from that date it was evident that the company could not avoid insolvent liquidation, then you could be personally liable for that period of wrongful trading.
Corporation Tax Return
Although most corporation tax returns are now submitted electronically the same sort of declarations apply as on the above, which is the signature section that has been extracted from a paper return known as a CT600.
In the case of a corporation tax return the declaration is that the information is:
… correct and complete to the best of my knowledge and belief
If your knowledge and belief was that you did not know for example that the information was not correct or complete, then the declaration is not necessarily going to be false. Of course, it will depend on the reasons that you did not know.
However, notwithstanding that, the declaration goes on to say that you are providing recognition that false information can result in prosecution.
Although most VAT returns are now submitted electronically and the same sort of declarations apply as on the above form, which is the signature section that has been extracted from a paper VAT return known as a VAT100.
You can see that another declaration is required:
… information given above is true and complete…. A false declaration can result in prosecution.
Unlike with a corporation tax return, the VAT return does not refer knowledge and belief for someone to rely upon.
Professional Advice Defence
A common feature of Directors who are challenged to explain discrepancies in accounts or tax returns is that they relied upon the professional advice of the accountants that they employed. That position does carry some weight but it worth remembering that an accountant can only provide advice on the basis of information that they are given by the Directors.
If the information provided by the Directors is incomplete or incorrect, then seeking to levy blame on the advice of a professional accountant will not likely be effective.
What Next? Expert Advice Is At Your Fingertips
If you have any concerns in relation to a document that you have signed as a Director of a limited company then Contact Us as soon as possible. Our expertise is just a click away.
Disclaimer: this post ‘Can You Be Personally Liable When You Sign Documents As Director?‘ is not legal advice and not to be treated as such. No liability is accepted for any reliance placed upon this post ‘Can You Be Personally Liable When You Sign Documents As Director?’. You should take independent professional advice on the specific facts of your case as to the point of this post ‘Can You Be Personally Liable When You Sign Documents As Director?‘.