Question

A decision from the U.S Court of Appeals in Philadelphia provides a good reason for directors to resign from poorly managed companies to avoid personal liability, even if someone else is making the mistakes.

The case indirectly stands for the proposition that board members can be liable for not firing incompetent managers. What were the bases for this outcome?

Answer 1

The basis for this outcome by the court can be the directors' duties and responsibilities as per their position, and the possibilities of Lifting the Corporate Veil.

If any director or member or any company officer fails to comply with the corporate formalities, it will result in the lifting of the corporate veil, and they would be personally liable for all the losses or damages to the company.

As per the company's directors, they have a lot of responsibilities and duties on the shoulder. They have to make sure that all the stakeholders' interest is secured and taken care.

It would include controlling and supervising the management team to ensure that the company works with optimum efficiency and productivity.

The board of directors is responsible for the management of the business done by the company.

If they fail to manage it appropriately, then the court has all the rights to make them personally liable for all the damages through the lifting of a Corporate veil, where the concept of separate legal entity between the company and the company's members or directors will cease to exist.