What are a Director’s Fiduciary Duties?

What is a fiduciary duty?

A fiduciary duty is a legal obligation to act honestly and in good faith for the benefit of another person or entity. This relationship is based on trust and confidence, where one party (the fiduciary) is entrusted with the care of another’s assets or interests, such as in the relationships between directors and their companies, trustees and beneficiaries, or lawyers and clients.

In England and Wales, the fiduciary duties of directors are primarily governed by the Companies Act 2006 along with established principles from common law. This means that Directors have a duty to act in the best interests of the company and to promote the success of its operations, rather than their own personal interests.

If you believe there has been a breach of fiduciary duty and need specialist advice from an experienced commercial solicitor, then our team can assist. If you would like to discuss your case, please do not hesitate to get in touch with us today.

What are a director’s fiduciary duties?

There are various duties owed by directors of companies. The statutory duties are primarily governed by the Companies Act 2006, and these reinforce the common law principles governing fiduciary duty.

Duty to Act Within Powers

Company directors must act in accordance with the company’s constitution, including its articles of association. They must only exercise their powers for the purposes for which they were granted.

Duty to Promote the Success of the Company

Directors must act in a way they consider, in good faith, would most likely promote the success of the company for the benefit of its members as a whole.

This includes considering factors such as the long-term consequences of decisions, the interests of employees, relationships with suppliers and customers, the impact on the community and environment, maintaining a reputation for high standards of business conduct, and acting fairly between members of the company.

Duty to Exercise Independent Judgement

Directors must exercise their own independent judgement and not merely follow the instructions of others unless they are authorised to do so by the company’s constitution or an agreement with the company.

Duty to Exercise Reasonable Care, Skill, and Diligence

Directors are required to perform their functions with the care, skill, and diligence that would be expected of a reasonably diligent person with:

• The general knowledge, skill, and experience that may reasonably be expected of someone carrying out the same functions.
• The general knowledge, skill, and experience that the director actually possesses.

Duty to Avoid Conflicts of Interest

Directors must avoid situations, transactions or indirect interests that conflict, or may conflict, with the interests of the company.

This applies particularly to the exploitation of any property, information, or opportunity, regardless of whether the company could take advantage of it.

Duty Not to Accept Benefits from Third Parties

Directors must not accept any benefit from a third party that is conferred because of their position as a director or because of any action (or inaction) by them as a director.

However, this does not apply to benefits received from the company itself or to benefits that the company has authorised.

Duty to Declare Interest in Proposed Transaction or Arrangement

If a director is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company, they must declare the nature and extent of that interest to the other directors before the company enters into the transaction.

Breaches of fiduciary duty

When a director breaches their fiduciary duties, it can have significant consequences for the company and its stakeholders. Directors have a range of fiduciary duties under the law, and breaches of these duties can lead to various legal actions.

Some common breaches of fiduciary duty include:

• Conflict of Interest: If a director is failing to act in the best interests of the company and is prioritising personal or external interests over their fiduciary responsibilities.
• Self-Dealing: In which a director benefits personally at the expense of the company’s interests, such as, if the director enters a contract between the company and a company they personally own and gives their personal company favourable terms.
• Misappropriation of Company Assets: This breaches the duty to act honestly and with care, as it involves misappropriating company resources, such as using the company’s money for personal expenses.
• Failure to Disclose: If a director fails to disclose a personal interest in a transaction or potential conflict of interest related to a decision. This lack of transparency prevents the board from making fully informed decisions and constitutes a breach of the duty to disclose.
• Breach of Confidentiality: If a director discloses confidential company information to a third party for personal gain or competitive advantage, it compromises the company’s competitive position and breaches the duty to maintain confidentiality.

Remedies for a breach of fiduciary duties

Remedies for a breach of fiduciary duties typically aim to prevent unjust enrichment and deter future misconduct.

Courts may order the fiduciary to account for profits made from the breach, pay compensation for losses caused, or return property acquired through the breach.

Injunctions can also be issued to stop ongoing breaches by ordering the fiduciary to rectify the breach.

Additionally, the court may rescind a transaction that resulted from the breach, placing parties in their original positions. This action retroactively terminates a contract and has it declared void.

How can South Bank Legal assist?

Our team of commercial solicitors at South Bank Legal are highly experienced in breaches of director’s fiduciary duties and can offer you advice suited to your unique situation.

The solicitors on our team can also provide specialist legal services on a wide range of commercial disputes issues. These include intellectual property disputes, multi-million-pound shareholder disputes, commercial contract disputes and property disputes.

If you are looking to take legal action or if you would simply like more advice on director’s fiduciary duties, you can contact us using the form below or telephone 02035765179 for a confidential discussion with one of our solicitors.

 

 

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