Director's Fiduciary Duties and Responsibilities

Director’s fiduciary duties are the legal and ethical obligations that directors of a company owe to the company and its shareholders. These statutory duties ensure that directors act in the best interests of the corporation, exercising their roles with responsibility, trust, and confidence. Failure to uphold these fiduciary duties can result in legal consequences, including personal liability for directors, as well as damage to the company’s reputation and financial health.

At Expert Commercial Law, we maintain a panel of commercial solicitors. If you would like more information on director’s fiduciary duties or to determine whether they have been breached, please get in touch with us today. 

What are director’s fiduciary duties in the UK?

In the United Kingdom, directors’ fiduciary duties are outlined primarily under the Companies Act 2006, which clarifies the responsibilities of directors to ensure they act in the best interests of the company and its shareholders. The key fiduciary duties of directors in the UK include:

1. Duty to act within powers (Section 171):
• Directors must act in accordance with the company’s constitution, which includes the articles of association, and must only exercise their powers for the purposes for which they were conferred.
2. Duty to promote the success of the company (Section 172):
• Directors must act in a way that they believe, in good faith, will most likely promote the success of the company for the benefit of its members as a whole.
3. Duty to exercise independent judgement (Section 173):
• Directors must exercise their own independent judgement and make decisions based on their own view of what is in the best interests of the company, without being unduly influenced by others.
4. Duty to exercise reasonable care, skill, and diligence (Section 174):
• Directors are required to exercise 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 in their position.
• Any specific knowledge, skill, and experience that they actually possess.
5. Duty to avoid conflicts of interest (Section 175):
• Directors must avoid situations in which they have, or could have, a direct or indirect interest that conflicts, or may conflict, with the interests of the company.
6. Duty not to accept benefits from third parties (Section 176):
• Directors must not accept any benefits (such as gifts, hospitality, or other inducements) from third parties that are offered because of their position as a director or could reasonably be perceived to create a conflict of interest.
7. Duty to declare interest in proposed transaction or arrangement (Section 177):
• If a director is 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.

What are the consequences of failing in these duties?

If a shareholder, creditor, or the company itself suffers financial loss or damage, they may take legal action against the director personally. However, it is often the company as an entity that pursues directors who have breached their fiduciary duties.

Removal as Director

A director can be removed from their position if more than 50% of shareholders vote in favour of the removal. The director must be given the opportunity to present their case during the meeting. The specific procedures for removal are outlined in the company’s constitution and may result in either a temporary suspension pending further investigation or permanent removal.

Interim Injunction

A court may issue an interim injunction to stop any ongoing actions that violate a director’s duties. This measure aims to prevent further financial losses and avoid irreversible harm to the company. For instance, if a company director is attempting to damage the company’s reputation or devalue its assets, an injunction could be used to halt such actions.

Shareholder Proceedings

In certain circumstances, shareholders may initiate legal action on their own behalf if they believe other directors might protect a director who has acted improperly. However, this process is complex and typically difficult to pursue.

Recovery of Financial Losses

If the company has incurred financial losses due to a director’s actions, the director can be sued in court. The financial consequences can be severe, potentially leading to the loss of personal assets, including their home, and even personal bankruptcy.

Setting Aside a Transaction

If a transaction is affected by a conflict of interest, it may be annulled, or the company property involved in the transaction may be restored under the rules governing transactional conflicts of interest.

How can Expert Commercial Law assist?

If you need expert guidance on your fiduciary duties as a director or are unsure whether a conflict of interest has occurred, Expert Commercial Law can help. We maintain a panel of solicitors who assist on a variety of commercial and business matters.

A solicitor can provide valuable guidance and assistance regarding director’s fiduciary duties and can help clients to assess whether or not there has been a breach.

Each solicitor is vetted before being allowed onto our panel and we only select the best in the business. All of our solicitor firms are authorised and regulated by the Solicitors Regulation Authority (SRA).

Our solicitors also help with commercial claims, such as breach of contract and CCJ removal.

Please note, we are not a firm of solicitors; however, we maintain a panel of trusted and regulated legal experts. If you contact us in relation to a commercial law case, we will pass your case onto a panel firm in return for a fee from our panel firms. We will never charge you for passing on your case to a panel firm.