Does a guilty plea to corporate manslaughter breach directors’ duties?

In a previous blog I looked at the four previous UK convictions for corporate manslaughter and how a guilty plea by the corporate entity could help the company’s individual directors avoid separate health and safety prosecutions and potentially lengthy prison sentences.

All of these cases (three guilty pleas and one conviction following trial) serve to highlight the fragile balance between a director’s responsibilities and liabilities under health and safety law, but also their responsibility in their role as company directors. Specifically, does agreeing to admit guilt on behalf of the company breach those directors’ duties?

The duty relevant in this scenario is the duty “to promote the success of the company” (section 172 of the Companies Act 2006). This specifies that a director must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.

In doing so the director must take account of the likely consequences of any decision in the long term, such as its impact on employee interests and the company’s reputation for high standards of business conduct.

Bearing this in mind, if directors decide that the company should plead guilty solely in order to protect themselves, taking into account no other factors, are they promoting its success, especially as the company could then suffer a hefty fine and conviction that may pose the risk of the company becoming insolvent?

In this scenario, directors would have to consider:

• If the company was, in fact, the truly guilty party; and/or
• The company had sufficient funds to meet the fine and legal costs without becoming insolvent or threatening business; and/or
• The extent of insurance cover for defence and prosecution costs (insurance would not cover any fines levied); and/or
• If the directors were convicted, might the company suffer badly and perhaps fail because it lacked their experience, knowledge and guidance?

To defend their position and rebut allegations of breach of duty, they need to record their decisions and the justifications for them.

If directors are found to have breached their duties, the company (and in certain circumstances its shareholders, on its behalf) may bring a claim against the director and, if successful, the remedies available are:

• An injunction
• Setting aside the transaction, restitution and account of profits
• Restoration of company property held by the director
• Damages
• (Potentially) grounds for the termination of an executive director’s service contract, or for disqualification as a director under the Company Directors Disqualification Act 1986

Two critical themes recur when analysing directors’ responsibilities in the context of health and safety law;

Firstly, directors must ensure they are kept informed on a regular basis of the company’s health and safety risks and performance. They could do this by appointing a health and safety director (such as an existing director or senior manager) or by having a health and safety committee to ensure reports are given to the board regularly.

Secondly, they should put in place sufficient risk assessment and auditing procedures to ensure compliance with the legislation.

The Institute of Directors and the HSE have jointly issued guidance on directors’ duties on health and safety at work which seeks to establish a health and safety benchmark for boards and directors. It sets out a four-point agenda for embedding the essential health and safety principles.

Although compliance is not compulsory, adherence to it should greatly improve the prospects of demonstrating compliance with health and safety law.

For more information on this subject, or any other health and safety legal matter, please contact David Edwards on 01772 258321 or David.Edwards@harrison-drury.com. David works as one of our specialists in dispute resolution at Harrison Drury lawyers in Preston – we also have a team of solicitors in Lancaster, Garstang and Kendal.