Many obligations in the Companies Act 1997 are imposed on the board or on the company, with section 414 then making every director liable for the failure. Section 419 is the answer to that.
Section 419(1) — duties imposed on the board
(a) the board took all reasonable and proper steps to ensure that the requirements would be complied with; or
(b) he took all reasonable and proper steps to ensure that the board complied with the requirements of this Act; or
(c) in the circumstances he could not reasonably have been expected to take steps to ensure that the board complied with the requirements.
Section 419(2) — duties imposed on the company
(a) the company took all reasonable and proper steps to ensure that the requirements would be complied with; or
(b) he took all reasonable steps to ensure that the company complied with the requirements; or
(c) in the circumstances he could not reasonably have been expected to take steps to ensure that the company complied.
Paragraph (a) looks at what the board or the company did — a collective answer. Paragraph (b) looks at what this director did, which can save a director who pressed for compliance and was outvoted or ignored. Paragraph (c) is for the director who was in no position to act at all — newly appointed, seriously ill, or deliberately excluded from the information.
Note the wording difference: in subsection (1)(b) the director must have taken all reasonable and proper steps; in subsection (2)(b), all reasonable steps. The board-duty limb is slightly more demanding, which makes sense — a director is a member of the board and can act within it directly.
In every limb the words are “where the director proves”. This is a reverse onus. Once the prosecution establishes the failure, the director must prove the defence — on the balance of probabilities — and will need evidence, not assertion.
In practice that means records: board minutes showing the issue was raised, correspondence with advisers, a documented compliance calendar, written instructions to a company secretary or accountant, and a note of any dissent. A director who cannot show what was done cannot prove paragraph (b).
What section 419 does not cover
| Charge | Is section 419 available? |
|---|---|
| Failure by the board to file, notify, prepare or send something | Yes — s 419(1) |
| Failure by the company to comply with a requirement | Yes — s 419(2) |
| False statements — s 420 | No — the offence requires the person’s own knowledge that the statement is false or misleading |
| Fraudulent use of property — s 421; falsification of records — s 422 | No — personal fraud or intent to defraud or deceive |
| Carrying on business fraudulently — s 423 | No |
| A duty imposed on the director personally — for example the disclosure of interests | No — s 419 addresses duties on the board or the company |
| Insolvent trading — s 348 | Not applicable — that is a civil liability, with its own test |
The related protections elsewhere in the Act
Section 116 — a director may rely on reports, statements, financial data and professional or expert advice from employees, professional advisers or experts, and other directors or committees, where the director acts in good faith, makes proper inquiry where the need is indicated, and has no knowledge that reliance is unwarranted.
Section 111 — a board may delegate powers other than those in Schedule 3, and is not liable for the delegate’s exercise where it believed on reasonable grounds that the power would be exercised in conformity with the Act and the constitution, and monitored the exercise by reasonable methods properly used.
Section 348A(2) — no declaration of personal responsibility for failure to keep accounting records where the director took all reasonable steps to secure compliance, or reasonably believed a competent and reliable person was charged with the duty and was in a position to discharge it.
Section 282 — the Court may relieve a receiver from personal liability incurred solely by reason of a defect in the appointment where the receiver acted honestly and reasonably and ought to be excused.
Section 283(6) and section 332(3) — acting in accordance with a Court direction is a defence to a claim, unless the Court orders otherwise because of the circumstances in which the direction was obtained.
Sections 286(4)(a) and 334(3)(a) — on an application to enforce duties, the Court may relieve the receiver or liquidator of the duty, wholly or in part.
Section 140 permits a company to indemnify and insure directors within limits — but an indemnity cannot answer a criminal penalty.
Section 154 allows shareholder ratification of certain actions of directors — which affects civil liability to the company, not liability to prosecution.
Building the defence in advance
- Keep a compliance calendar for the annual return, financial statements, and change notifications, and minute that it was reviewed.
- Minute dissent. A director who opposed a course, or pressed for a filing, should have that recorded — it is the evidence for paragraph (b).
- Delegate properly and monitor. Sections 111, 116 and 348A(2) all require more than appointing someone; they require reasonable grounds and monitoring.
- Seek directions early where you are an office-holder — a direction obtained on full disclosure is a defence under sections 283(6) and 332(3).
- Do not rely on section 419 for anything involving your own knowledge or intent. It has no application to sections 420 to 423.
Sources
- Companies Act 1997 — ss 111, 116, 140, 154, 282, 283, 286, 332, 334, 348A, 413, 414, 419–423; Schedule 3
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.