As insolvencies rise, commercial solicitors are receiving a growing number of enquiries from non-executive directors worried about their responsibility for the ‘going concern’ statement in their company’s annual report.

Directors make a ‘going concern’ judgment to assure shareholders that the business is viable for the next year. However, insolvencies have risen by 26.3% since last year and as economic conditions worsen non-executives are becoming increasingly concerned that they could be financially responsible if their company goes under.

Commercial solicitors are therefore advising non-executives to take legal advice as early as possible rather than leave it until just before accounts are due to be signed off and it is too late to do anything.

Nevertheless, it is difficult to prove a non-executive’s liability since it has to be clear that “no reasonable director” would have issued the ‘going concern’ opinion. Accountants, bankers and other directors with particular expertise would be expected to use these in making their judgment.

According to research conducted by TakeLegalAdvice.com last year, nearly three-quarters of directors feel that being a company director puts them in a personally legally risky position. Of the 1000 directors surveyed for The Law of Unintended Consequences, many said their position affected their personal life to the extent that nearly half said they sometimes lay awake at night thinking about it.

Nicholas Phillips, of Westminster commercial solicitors William Sturges, warns non-executives about the present economic climate. "Directors should take particular care to consider and to state expressly the assumptions that support their going concern statement and any qualifications that should be made to it."

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