Can a director of a company be furloughed?
The UK Government’s guidance on the Coronavirus Job Retention Scheme now expressly confirms that office holders including Company Directors, Company Secretaries and salaried members of Limited Liability Partnerships may be furloughed. We will consider the position of Company Directors in Private Limited Companies.
The decision of whether a Company Director can be furloughed must be made by the company acting by its board of Directors in accordance with the Constitution of the Company and/or Articles of Association. The Company will either need to hold a virtual board meeting or make a written decision resolving to furlough the relevant office holder.
It is important to note that a Director who is being furloughed will be considered to be ‘interested’ in the furlough arrangement and therefore the board must refer to the Company’s Constitution and/or Articles of Association to determine whether that Director may or may not be able to count in the quorum or vote on the decision.
The decision must be correctly recorded and communicated in writing to the office holder it concerns. If the company is listed on the Official List of the London Stock Exchange, the decision will amount to an “important change to the role, functions or responsibilities of directors” which must be notified to the market as soon as possible and by the end of the business day following the decision at the latest.
Directors will need to give consideration to their duties owed to the Company when making the decision whether to furlough one or more office holder. Directors have a duty to promote the success of the company for the benefit of its members (shareholders) as a whole and therefore consideration must be given to the impact on the shareholders, reputation and overall success of the company. Each director will need to exercise independent judgement and come to their own decision as to whether or not furlough is the right choice in the circumstances.
Furloughed Directors cannot do any work that they would in normal circumstances to generate commercial revenue or provide services to or on behalf of the Company. However, they may participate in training or volunteer.
It is crucial for Directors to note that although furloughed, they are still appointed and therefore need to comply with their duties under Company Law and perform their statutory duties such as filing company accounts and other legal filings. Other than this, they are permitted to do no more than is reasonably necessary. It is likely to be difficult to determine what is considered as reasonably necessary however it is to be judged on a situational basis, giving deliberation to Duties owed to the Company.
Directors’ remuneration will be covered by the furlough scheme in the same way as other employees. The grant paid to them will be calculated based on their regular contractual pay and compulsory commission. The calculation will exclude payments made to directors outside of the PAYE system or discretionary commission, payment, bonuses, non-cash payments or benefits in kind.
This article does not constitute legal advice and is aimed to provide an overview of the guidance at present during these unprecedented times. Information on COVID-19 is changing daily. Legal advice should be sought to address specific circumstances. Willsons Solicitors are still open for business and we are contactable by telephone, video conferencing, email and post. Willsons Solicitors are contactable on 02476 387 821 where your enquiry will be directed to the relevant team. For Corporate and Commercial Enquiries please ask for Manisha Walia. You can also contact us by clicking here.