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Learn A Lesson From Patisserie Valerie.

Learn a lesson from Patisserie Valerie.

Like us, you may have been reading about the issues and subsequent legal exchanges around the demise of Patisserie Valerie. The popular chain collapsed in 2019 following the emergence of a major accounting scandal. The Directors of the company are now suing the Auditors for negligence and for failing to spot an alleged manipulation of its books. This has now resulted in the board “being unaware that the group has insufficient funds to continue to trade”.

We can’t guess which way the case will go, but it may prove to be another example of how things can go catastrophically wrong if the directors don’t follow the rules. If it can happen to a large chain, it could happen to anyone.

The bottom line

The bottom line is that the ultimate responsibility for the success or failure of any business lies with its Directors. In businesses, directors have certain fiduciary duties which are part of the Companies Act 2006 and are therefore statutory.

Legal Responsibilities 

The Companies Act 2006 details the legal responsibilities you carry when becoming a director as follows:

  1. To act within powers in accordance with the company’s constitution and to use those powers only for the purposes for which they were conferred.

    As a director, it is important to be familiar with the articles of association for your business. These articles are likely to restrict your individual decision-making powers.

  2. To promote the success of the company for the benefits of its members.

    You should act in good faith to promote success for the company and its shareholders. You need to consider the outcomes of your decisions for everybody involved in the business. It is also important to consider the impact your decisions will have on the environment, the reputation of your company and your business’ success.

    All decisions should be made within the best interests of the company, not to benefit any individuals. However, be broad-minded when evaluating those interests, keeping in mind other stakeholders. The financial aspect is not the only perspective to consider.

  3. To exercise independent judgment.

As a director, you are legally obliged to exercise judgment independently and be prepared to question the decisions of others. If the existing board make decisions, it is important to question why that’s the best thing for the company. But if you have a different approach in mind, you should voice it.

  1. To exercise reasonable care, skill and diligence.

    In your position as director, you are expected to make decisions based on diligence, knowledge, skill and experience. If you have specific professional training, you will be held to a higher level of accountability than less-qualified members of the board.

  2. To avoid conflicts of interest.

    A conflict of interest could arise if you have a close, personal interest in the business of competitors or other third parties. Alternatively, if you are responsible for a decision regarding an employee or potential employee with whom you have a close relationship, this would also constitute a conflict of interest. If you find that you have a conflict of interest, you must declare this to the board. However, it is important to ensure that your non-financial interests do not take precedence over your duties as a director.

  1. Not to accept benefits from third parties.

You must not accept benefits with the expectation of you doing, or not doing, something within your power to influence a decision.

  1. To declare an interest in a proposed transaction or arrangement.

If you have an interest in a deal or transaction, you must make it known. If a close friend or family member will benefit from you doing business with a specific supplier, you must declare this to your board members.

By following these simple legal requirements your business is much less likely to suffer the fate of Patisserie Valerie.

How Ampios Can Help

If you have any concerns about how your board currently operates or are uncertain about how to make your board even more effective, get in touch to discuss how we can help you.

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