Director’s Duties – a duty owed to Shareholders?

What is an indemnityTaking on the role of a company director brings with it a number of duties under the Companies Act 2006.

They can be summarised as:-

  • Duty to act within powers of the company’s constitution i.e. Articles of Association
  • Duty to promote the success of the company
  • Duty to exercise independent judgement
  • Duty to exercise reasonable care, skill and diligence
  • Duty to avoid conflicts of interest
  • Duty to accept benefits from third parties
  • Duty to declare an interest in proposed transactions and arrangements

Owing a duty to shareholders as the owners of the company has perhaps surprisingly for some never been part of the above Code.

In the case of Vald. Nielsen Holdings A/D v Baldorino [2019] EWHC 1926 (Comm) the High Court considered the situations in which the above duties would extend to shareholders as a result of a fiduciary relationship; in other words when the director acts on behalf of a shareholder in managing and overseeing the shareholder’s assets.

The case related to a Management Buy-Out scenario in which it was claimed by the shareholders that they were misled by the false representations of the directors, who were the buyers, and as a result the shareholders parted with their shares for much less than they were worth. It was argued that the directors had breached their fiduciary duty and as a result the shareholders sought to recover an account of profits by way of compensation.

The High Court held that unless there were special circumstances in respect of the relationship between the director and shareholders, then no fiduciary duty arose. However, it was necessary to carefully consider the nature of the relationship in the wider context.

It is therefore possible that if a director is in breach of the above duties and a loss is suffered by a shareholder, creditor or the company then a claim could be made against the director personally.

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For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

Disclaimer: The information provided on this blog is for general informational purposes only and is accurate as of the date of publication. It should not be construed as legal advice. Laws and regulations may change, and the content may not reflect the most current legal developments. We recommend consulting with a qualified solicitor for specific legal guidance tailored to your situation.