Director didn’t breach duties when pursuing personal gain

On behalf of Attwaters Jameson Hill posted in Uncategorised on Thursday, August 14th, 2014

Directors have a legal duty to act in their company’s best interests. When their work as a director alerts them to a business opportunity that would benefit the company, they should not exploit that opportunity for personal gain and to the company’s detriment.

Directors have a legal duty to act in their company’s best interests. When their work as a director alerts them to a business opportunity that would benefit the company, they should not exploit that opportunity for personal gain and to the company’s detriment.

However, that duty may not apply if the company’s shareholders consent to a director pursuing personal interests, as happened in a recent case before the Court of Appeal.

It involved a family business set up to acquire dental practices. The shareholders were a mother and her two sons, and a dentist who was married to one of the sons. They each had a 25% shareholding.

At a shareholders’ meeting, the dentist raised the issue of being able to acquire five dental practices in her own name, outside the corporate structure.

The mother, who was the dominant voice in the family, told her that she could go ahead if she wished. The two sons said nothing and did not raise any objections. The company went on to acquire several practices, and the dentist acquired five other practices in her own name as discussed at the meeting.

The marriage between the son and the dentist then broke down and divorce proceedings began.

The family then questioned the legality of the dentist acquiring the practices in her own name and claimed she had breached her legal duties as a director. The judge, however, ruled in her favour. He said that the family shareholders had understood what she was doing and had consented to it. She was therefore the legal owner of the five practices acquired in her name.

The Court of Appeal has upheld that decision. It said that if the shareholders, with full knowledge of the facts, consented to a director exploiting such opportunities for personal gain, then there was no breach of statutory or fiduciary duty.

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