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MPS SHOULD LEARN FROM DILIGENT DIRECTORS, SAYS CLARKE WILLMOTT

Strict rules in Companies Act 2006 means private sector directors must be beyond reproach – or face fate of MPs

The current furore and public outrage over MPs‘ expenses should act as a dire warning for company directors to make sure their own claims are legitimate and in their business‘s best interests.

That is according to Tom Read, partner and commercial dispute specialist at national law firm Clarke Willmott LLP which has offices in London, Birmingham, Southampton, Bristol and Taunton.

“You can‘t pick up a newspaper these days without seeing pages and pages of scandal about MPs claiming for televisions, soft furnishings, moat cleaning and duck shelters on expenses – which have been paid for by us the taxpayers,” he said.

“The fact is some of these expenses bear no relation to the real, commercial world that we work in, where any attempt to make claims of that nature would be unthinkable – particularly if you are a company director whose conduct must be guided by the overriding principle that everything you do must be in the company‘s best interests.”

Mr Read said that in addition to doing everything they could to keep their companies afloat in tough economic conditions, directors also had a duty to ensure they acted in compliance with the Companies Act 2006.

“Amongst other duties contained in the Act a director, whether of a small local company or a multi-national enterprise, has to act in a way which he or she considers will promote the success of the business,” he said.

“It‘s a wide obligation which catches a multitude of sins including expense claims. The diligent director, acting in compliance with this duty, will claim back from the business only those expenses which are legitimately incurred in the company‘s interests.”

Claims which could be considered legitimate, said Mr Read, included marketing, entertaining clients and potential clients and travel costs incurred while engaging visitors and customers.

But he also warned that company directors who used the business as a personal bank account, funding an unsupportable lifestyle and incurring expenses for their own personal benefit and not the company‘s, would fall foul of the Act.

“Not only is such a director likely to get clobbered by HMRC,” said Mr Read, “but he will also open himself up to a claim by the company, instigated by the other directors and shareholders, for breach of those duties.”

He added: “The diligent director knows what is right or wrong for their business. MPs can learn a lot from the private sector and should take note. Who would bet against us seeing a new expenses regime in Westminster which reflects far more closely the rules and realities of the commercial world than it has ever done before, and be all the better for it?”

ENDS  15th June 2009

For further information please contact Neil Fraser, Sturgess Van Damme, on 01275 349011 or email neil@sturgessvandamme.co.uk

Photo Caption: Tom Read