What is a breach of fiduciary duty?

Breach of fiduciary duty refers to a violation of the legal and ethical responsibilities that one party, known as the fiduciary, owes to another, known as the beneficiary.

Fiduciary duties are often associated with roles such as directors, trustees, or agents who are entrusted with managing the affairs of another party. These duties are rooted in principles of trust, loyalty, and good faith.

At the core of fiduciary duties is the obligation to act in the best interests of the beneficiary. This duty requires fiduciaries to exercise reasonable care, skill, and diligence in carrying out their responsibilities.

Directors have a a fiduciary duty under common law as well as under statute. The Companies Act 2006 in England and Wales outlines specific fiduciary duties for directors. This includes the duty to act within their powers, promote the success of the company, exercise independent judgment, avoid conflicts of interest, and declare any interest in proposed transactions or arrangements.

Avoiding conflicts of interest is a fundamental aspect of fiduciary duties.

Those with a fiduciary relationship must act solely in the interests of the beneficiary. They should avoid situations where personal interests may conflict with their duty to act in the best interests of the company or its shareholders.

Breaches of duty can occur when a fiduciary fails to disclose a conflict, exploits opportunities for personal gain, or engages in transactions that compromise their duty to the company.

What can be done if a director breaches a fiduciary duty?

If a director breaches a fiduciary duty, various actions can be taken to address the breach and seek remedies. The specific steps and remedies available depend on the nature and severity of the breach. Outlined below are some common measures that can be taken:

Internal resolution and remedial actions:

• Board intervention:

The board of directors may address the breach internally by discussing the matter with the director in question, conducting an internal investigation, and taking corrective actions within the company’s structure.

• Company policies:

Companies often have internal policies and procedures in place to address breaches of fiduciary duties. The enforcement of these policies can include warnings, reprimands, or other disciplinary actions.

Legal actions against the director:

• Removal:

Shareholders or the board of directors may have the authority to remove a director who has breached their fiduciary duties. The removal process is typically outlined in the company’s articles of association or bylaws.

• Legal proceedings:

The company or its shareholders may initiate legal proceedings against the director for the breach of fiduciary duty. Legal actions can seek remedies such as damages, injunctive relief, or specific performance to rectify the harm caused by the breach.

Regulatory Action:

• Regulatory authorities:

In some cases, regulatory bodies overseeing corporate governance may become involved. They may investigate the breach and take regulatory actions against the director or the company, including fines or sanctions.

Shareholder Actions:

• Derivative Actions:

Shareholders may bring derivative actions on behalf of the company against the director for breach of fiduciary duty. These actions are brought by shareholders on behalf of the company to remedy harm caused to the company.

How can ARC assist?

ARC Costs maintains an extensive legal network of expert commercial litigation solicitors with a track record of success on these types of cases. We would be happy to pass on your details to assist in your case. 

In addition to introducing you to a solicitor, we can also assist in the recovery and negotiation of legal costs in shareholder dispute cases, whether you are the paying or receiving party.

ARC Costs are highly experienced in advising and assisting with costs issues and disputes in different areas of law. As Costs Draftsman and Costs Lawyers, we can assist you with your commercial litigation costs issues.

Should you wish to discuss your costs query with us, please contact us on 01204 397302 or via email at info@arccosts.co.uk. Alternatively, you can complete our online query form, and we will contact you to discuss your query further. We can provide expert legal advice on costs in our free, no obligation initial consultation.

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