As the recession grinds on a different kind of boardroom dispute is coming into play. Whilst directors must act collectively, they ultimately take responsibility individually. Where a company has become insolvent, or even where it has just lost value, the board, the shareholders or the liquidator may start looking for somebody to blame. When this happens directors must make sure that it is not their head on the block.
The Board may seek out the weakest link and fire them as a token to soothe shareholder anger. There is little that a director can do in this situation except ensure that they pick up the appropriate compensation for their loss of employment.
Shareholders may look to sue the directors if they believe that the loss has been caused by their negligence or that they were mislead when they purchased their shares. A predicted explosion of D&O (Directors and Officers) litigation has, however, failed to materialise. English law does not provide an easy route in such circumstances and the greater flexibility of US law and its class action format means that aggrieved shareholders of RBS have taken to suing subsidiaries in the US rather than the UK. That is not to say that some shareholders will not put their money where their mouth is and bring a personal action or a derivative action on behalf of the company.
Finally, the Liquidator of an insolvent company will certainly be looking at the conduct of all directors prior to the liquidation. In this respect directors should be aware of the key considerations for directors of insolvent companies. A director who is not aware of their duties and the risks inherent in an insolvency situation risks much.