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Breach of Directors’ Duties

The directors of a company are responsible for representing and promoting the interests of the company.

To this end, they have a wide range of important duties, including acting in compliance with the company’s constitutional documents and in a way that promotes the success of the company for the benefit of its members.

If a director of a company breaches his or her fiduciary duties, they could face civil action and, in some cases, criminal sanction. Breach of directors’ duties and resulting legal action can have significant consequences for the director, company, shareholders and creditors. It is essential that you seek advice and representation from specialist Commercial Litigation Solicitors to protect yourself and the company throughout any legal proceedings and to secure the most favourable outcome.

At Saunders Law, we have extensive experience assisting directors, companies and shareholders involved in disputes relating to a suspected breach of directors’ duties. Our depth of legal knowledge and litigation expertise in this area has earned us an excellent reputation for achieving successful results for our clients. If you require immediate, proactive advice about a dispute, please contact our Commercial Litigation Lawyers today.

What are Directors’ Duties in the UK?

Directors are subject to a number of fiduciary duties, which are set out in the Companies Act 2006:

  • to act within the powers prescribed in the company’s constitution;
  • to act in a manner that is most likely to promote the success of the company;
  • to exercise reasonable care, skill and diligence when carrying out their duties;
  • to refuse benefits from third parties;
  • to avoid conflicts of interest;
  • to exercise independent judgement; and
  • to declare any interest in a proposed transaction or arrangement that the company intends to enter into.

In addition to the statutory duties, directors also have a responsibility to consider or act in the interests of the company’s creditors, especially when insolvency is possible, and to uphold the confidentiality of the company’s affairs.

If a director fails to act in accordance with these requirements, it could be considered a breach of fiduciary duty, in which the claimant can file for damages for lost profits or negligence on the part of the director.

What Sanctions can be Imposed for a Breach?

Where a director is found to be in breach of his or her fiduciary duties, the following claims can be brought by the company involved in the dispute:

  • Restitution of profits. Where the company has suffered loss as a result of a director’s misconduct, a court may order any personal profit made by the director in connection with the conduct to be relinquished to the company.
  • Restoration of property. If an erring director has taken hold of any property belonging to the company, the company may seek restoration of that property.
  • Injunctive relief. A company may also bring a claim against a director to prevent them from carrying out a breach or continuing to breach their duties, known as an injunction.
  • Rescission of a contract. If a director signs a contract that is contrary to the company’s intentions, this can be reversed.
  • Damages. Damages may be payable to a company where it has suffered loss as the result of a director’s negligent infringement of his or her duties.

Can Shareholders Take Action Against Directors?

In some circumstances, it may be possible for the shareholders of a company to bring a claim against a director who has breached his or her fiduciary duties. As directors only owe their duties to the company, shareholders can only initiate litigation where they bring a claim in the company’s name and claim for the company’s loss, not their own. These are known as derivative claims.

There are a number of safeguards that apply to derivative claims to prevent their abuse. For example, a court must be convinced that the action is in the best interests of the company and that the shareholder is acting in good faith.

Disputes involving Breach of Directors’ Duties

Disputes of this nature are among the most legally complex and can have serious consequences for a director and the company. That is why, if you become involved in such a matter, you should seek the advice and representation of specialists in this area.

For directors, it is essential that you have robust legal representation in order to limit any impact on your livelihood and reputation. We will carefully consider the facts involved and build a strong strategy on your behalf, which may involve proving that you acted reasonably and honestly in the circumstances in order to relieve you of any liability.

When a director is not acting in the best interests of the company, it can have a significant impact on the investors’ confidence. If you suspect a breach of directors’ duties in your company, it is important to act without delay. At Saunders, our Commercial Litigation Solicitors will act quickly and tenaciously to limit any damage to the company.

Shareholders who aim to take legal action against an errant director must negotiate the complex rules relating to derivative claims. Our solicitors have a great depth of experience with these claims. We will provide expert advice and representation to ensure the full extent of the company’s loss is recovered.

Breach of Directors’ Duties Explained

What happens if a director breaches their duties?

If a director breaches their fiduciary duties towards their company, the company can take legal action against the director. This action is usually instigated by the stakeholders seeking restitution for financial loss or damage.

Depending on the type of director misconduct, the company has a variety of legal options available to it. The company could ask the director to account to them for any profits, pay compensation, return company property or rescind contracts the director has entered into.

There are some duty breaches that are considered a criminal offence which can result in disqualification and fines for the director, or even imprisonment for the more serious cases.

Can a director sue another director?

It’s not only shareholders who can make a claim for a breach of directors’ duties, other directors of the company can also make a claim. Individual directors can even bring a claim against a whole board of directors as long as it’s done in the company’s name and to recoup the company’s loss.

Contact our Commercial Litigation Solicitors in London

At Saunders, we have a highly accomplished partner-led team of Commercial Litigation Lawyers. We are well aware of the challenges that face directors and companies every day, and it is our aim to help you resolve the most challenging of legal issues you experience, whether through litigation, mediation or arbitration.

In cases like this, where there is a great deal at risk, it is essential that you work with the right firm; it could mean the difference between winning and losing a case. With over 40 years experience advising and representing clients in commercial law matters, including many high-profile cases, we are well placed to provide clear, commercially-sound and pragmatic legal advice in all disputes relating to breach of directors’ duties. We are recognised for our advocacy skills and for tirelessly fighting our clients’ corners.

We provide transparent, upfront information on our fees, so you do not have to be concerned about unexpected costs. We are also happy to discuss tailored funding arrangements, including, in some situations, potential conditional fee arrangements.

Call us on 020 7632 4300 or make an enquiry online.