The consequences of a breach of a directors fiduciary duties can be quite severe. A shareholder, creditor or the company can bring proceedings against a director personally for a breach of such duties, provided loss or damage was caused as a result of such a breach.
The common law duty of reasonable care, skill and diligence pervades throughout all of the directors’ decisions within the Company and if any breach of such decisions occurs then proceedings for a breach of his/her fiduciary duties may be bought by the person with whom the relationship of trust and confidence existed.
Generally, proceedings for a breach of directors’ fiduciary duties are bought by the company, usually on the instigation of the remaining directors in that company. In such circumstances a director may be removed from his position (either temporarily or permanently, dependent upon shareholder approval) and then pursued by the company for recovery of such monies.
However there are other options available, should it appear that a Director is in breach of his/her fiduciary duties.
For example, shareholders can bring proceedings under the Companies Act 2006 which derive their rights to sue that director in his personal capacity on behalf of the Company.
This can be a complex litigation procedure but enables shareholders (including minority shareholders) to take action that would otherwise only be available to the company care of its directors (who may be colluding with the wrong doing director).
Various rights also exist against Directors under the Companies Act 2006.
The consequences of the penalty imposed upon Directors for a breach of their fiduciary directors is usually in damages representative of the director loss and (potentially) the prospective loss.
This can be very severe and, in addition to any sum awarded for the loss and damage that the Company (or innocent parties) have suffered, can also include interest on any such sums retained and the Claimant’s legal fees.
It is not uncommon for a director to be pursued personally, be dismissed from a company and that such proceedings lead to a loss of his residential home and ultimately, in the worst case scenario, becoming declared bankrupt directly as a result of these circumstances.