Directors play myriad roles within a company, serving as the driving force behind operations and standing as the guarantors for its debts. For a substantial period, the issue of whether directors can be held financially liable for the actions of the companies they represent has been a subject of considerable debate. The recent ruling by the Supreme Court in the case of Lifestyle Equities v Ahmed has now brought these questions to the forefront of legal discussions.
The Supreme Court’s decision is underpinned by a comprehensive review of international case law and academic papers, with the objective of bringing consistency to the fragmented body of law evident in earlier decisions. The ruling addressed the issue of whether directors can be held personally liable for acts undertaken in their role as directors, as well as the criteria for establishing accessory liability.
The Court clarified that a director’s status does not render them immune from liability for acts carried out in their capacity as a director. Directors can be held liable based on their own actions and responsibilities. Nevertheless, the Court also emphasised the importance of establishing evidence that a director had knowledge of the essential facts underlying the infringement, in cases where they are accused of being liable as an accessory.
In the case at hand, the Court overturned the decision by the Court of Appeal regarding the treatment of directors’ salaries as profits of the infringing acts. This ruling has sparked reactions from legal commentators, with some hailing it as a major change in the law.
The decision has implications for both in-house counsel and rightsholders. In-house counsel, particularly those in IP-rich businesses, should take note of the ruling’s impact on the liability of directors. Rightsholders need to review their enforcement strategies to ensure that directors cannot deny knowledge of the essential facts of the infringements.
The ruling has raised questions about the clarity of liability requirements, particularly for SMEs, and the extent to which directors can be held accountable for not giving sufficient attention to the broader operation of their businesses. It is essential for businesses and their directors to review their internal processes to mitigate the risk of potential liability.
In conclusion, the Supreme Court’s ruling on directors’ liability has far-reaching implications for businesses and their directors. It is crucial for companies to re-evaluate their internal processes and for rightsholders to update their enforcement strategies in response to this landmark decision. If you need assistance navigating the legal landscape surrounding directors’ liability, our team is here to help. Get in touch for an introductory conversation to discuss your needs and explore our range of products and services designed to help your company stay compliant.