[Pheonix]

I apologise that this message is a long one, but it will give you an understanding as to why Peter Marsden may have resigned. Directors need to protect their credibility and act appropriately.

Fiduciary duty
Each director must act in accordance with what he or she believes to be the best interests of the company. Directors must not place themselves in a position in which there is a conflict between their duties to the company and their personal interests. For example, in a take-over bid, the fact that the directors as individuals might hold between them a majority of the voting shares does not mean they can follow their own individual wishes.

Accounts and dealing
Directors' duties in respect of accounts are stringent and comprehensive. Directors are responsible for preparing a profit and loss account and a balance sheet, ensuring that proper accounting records are kept, and taking all possible steps to ensure that the accounts show a true and fair view. This is now reflected in the 'Statement of Directors' Responsibilities', which has to be attached to the statutory financial statements.
Directors are also under a statutory duty to supply auditors with necessary information and explanations. This is the reason for requesting 'letters of representation'. Criminal liability can follow if directors 'knowingly or recklessly' make a 'misleading, false or deceptive statement' to the auditors.

Directors Duties to whom?
The duties of directors under the general law are owed to the company and not to its shareholders, so it is the company, or its liquidator, that can sue. Creditors can, in the case of a company in liquidation, apply to the court for an order compelling the directors to repay such sum as the court considers just in respect of the directors' 'misfeasance or breach of trust.'

A director who is knowingly a party to fraudulent trading may also be personally liable to creditors.

However, although directors have a statutory duty to have regard to the interests of employees, it is doubtful whether employees could sue the directors personally, because the director's duty is to the company.

Wrongful trading
Wrongful trading may be broadly defined as a failure by a director or shadow director of a company to take every step that he or she should have taken to minimise loss to creditors once he or she knew or ought to have known that the company was unlikely to avoid insolvent liquidation. The possible penalties for wrongful trading are:
• Liability to make a contribution to the assets of the company in a sum to be decided by the court
• Disqualification from being concerned in the management of a company
When a company goes into insolvent liquidation, it is necessary to make a judgement:
• Whether the directors took such steps to monitor their company's affairs as would be taken by a reasonably prudent businessperson
• If they failed to do so, whether they would have realised the company's insolvency earlier if they had taken such steps

It is therefore essential that the board of directors ensure that appropriate steps are taken to monitor the company's financial position on a regular basis.

Tests of insolvency
There are a number of ways to test for insolvency. You should consider the following:
• Is the company paying its liabilities as they fall due or shortly thereafter, and will it continue to do so in the foreseeable future?
• Do the aggregate liabilities, including contingent or prospective liabilities, exceed the total value of the company's assets?
• If the company were put into liquidation now, would the realisations from the disposal of the assets be sufficient to pay all liabilities and the costs of the liquidation in full?

Fraudulent trading
Honest directors should not find themselves guilty of fraudulent trading. Nevertheless, if a company has already incurred liabilities that it failed to pay when they fell due or shortly thereafter, the board should consider the position carefully and place on record the factors that led them to conclude that any further liabilities incurred would be paid at the proper time before allowing the company to obtain any additional credit.