The Unfaithful Fiduciary: The Duties of Directors – Matthew Crowe

In his article ‘The Unfaithful Fiduciary: The Duties of Directors’, Trinity Business & Property barrister, Matthew Crowe explores in depth the significance of loyalty when looking at the fiduciary duties owed by company directors.

Introduction

Loyalty is the leitmotif of the fiduciary office. It marks out the director’s role from every other commercial relationship, weaving through the fabric of corporate governance a set of exacting obligations: not to profit from the trust reposed, not to place oneself where duty and interest may collide, and not to act for personal or third‑party benefit without fully informed consent.

For company directors, whether de jure, de facto, shadow, or otherwise, these equitable strictures now find their principal expression in statutory form under the Companies Act 2006 (“CA”). What follows considers those duties, recent illustrations, and some practice points for when a director proves unfaithful to the office they hold.

Duties Revisited

The seven general duties, which are to be interpreted in a manner consistent with the equitable rules they replaced, appear deceptively simple.

Section 171: Act within powers and for proper purposes. This duty requires a director to exercise powers only for the purposes for which they were conferred. Disputes commonly arise around the use of share or board powers to influence voting outcomes or control contests: Eclairs Group Ltd v JKX Oil & Gas plc [2015] UKSC 71; [2016] AC 1149 (SC); Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 (PC). A recent illustration is Yodel, discussed below. Directors cannot defend a section 171 breach by appealing to subjective good faith if the purpose was improper; compliance with the articles and evidence of a proper contemporaneous purpose remain the director’s best defences.

Section 172: Promote the success of the company in good faith for the benefit of members as a whole, having regard to the statutory factors. At its core, this duty lies in honest, good‑faith judgment. Courts commonly defer to commercial judgment, but deliberate deception or dishonesty will be incompatible with section 172. In Saxon Woods, the Court of Appeal held that dishonesty is assessed objectively on the director’s known or believed facts, and that deceiving the board will almost always breach section 172: Saxon Woods Investments Ltd v Costa [2025] EWCA Civ 708 (CA) (subject to appeal). The “creditor duty” is carried via section 172(3). After Sequana, creditor interests must be weighed when insolvency is actual, imminent, or probable, with their importance intensifying as financial distress deepens: BTI 2014 LLC v Sequana SA [2022] UKSC 25; [2023] BCC 32 (SC). A director’s best protection is a well‑documented process showing the statutory factors were considered, advice was taken where appropriate, and, in distress, creditor interests were consciously balanced.

Section 173: Exercise independent judgment. Directors must bring their own mind to bear and not abdicate to others. Blind deference to an appointor, or the orchestration of collusive board tactics, have both drawn criticism (e.g., Stobart Group Ltd v Tinkler [2019] EWHC 258 (Comm)). It remains permissible to agree that the company will act in a particular way where doing so is itself a proper exercise of judgment in the company’s interests.

Section 174: Exercise reasonable care, skill and diligence. The standard has both objective and subjective limbs and is sensitive to role and responsibilities. Failures to obtain or heed legal and financial advice, to supervise delegated tasks or to run a proper board process have led to liability: Re D’Jan of London Ltd [1994] 1 BCLC 561 (Ch); Optaglio Ltd v Tethal [2015] EWCA Civ 1002 (CA). Reliance on competent advisers where reasonable and a robust record of risk identification, options appraisal and decisions made are central to a section 174 defence. Section 1157 may relieve honest and reasonable directors where the court considers it fair to excuse them. Dishonesty is a bar.

Section 175: Avoid conflicts of interest, including corporate opportunities. This strict duty prohibits placing oneself in a position where duty and interest may conflict, and bars unauthorised profits, even if the company could not itself have exploited the opportunity. Classic authorities include Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 (HL); Boardman v Phipps [1967] 2 AC 46 (HL); and Bhullar v Bhullar [2003] EWCA Civ 424; [2003] 2 BCLC 241 (CA). Misuse of confidential information and side dealings often feature in these cases, and the defence tends to centre on fully informed consent: either board authorisation, where the constitution permits, or fully informed shareholder approval.

Section 176: Do not accept benefits from third parties by reason of being a director or doing (or not doing) anything as a director. These cases may involve secret commissions or hospitality carrying a quid pro quo. In the BHS litigation, the court ordered a director to account for an undisclosed £300,000 commission connected with a major transaction: Re BHS Group Ltd; Wright, Rowley, BHS and others v Chappell & Ors [2024] EWHC 1417 (Ch). Approval by the members may cure some situations, and a “de minimis policy” in the articles can help manage low‑value benefits, but undisclosed commissions remain high‑risk.

Section 177: Declare interests in proposed transactions or arrangements. The duty to declare is strict and objective. Informal or partial disclosure will not suffice. Non‑disclosure of direct or indirect interests in a proposed contract is a familiar complaint: e.g., Kings Security Systems Ltd v King [2021] EWHC 325 (Ch).

Case updates

Saxon Woods Investments Ltd v Costa [2025] EWCA Civ 708 (subject to appeal)

Spring Media’s shareholders’ agreement required the company and investors to work in good faith towards an exit by 31 December 2019 and to give good-faith consideration to exit opportunities during that period. Saxon Woods, a 22.33% minority shareholder, alleged that Mr Costa, the chairman, effectively controlled the process, failed to pursue the agreed exit, misled the board, and concealed that he was in fact doing what he could to prevent a sale before the deadline.

The Court of Appeal held that the trial judge’s approach to section 172 was flawed because it treated the duty as purely subjective. The court observed that the requirement to act “in good faith” in section 172 includes a core fiduciary requirement of honesty, and honesty is assessed using an objective standard in light of the facts as the director knew or believed them to be. On the judge’s own findings, Mr Costa had misled the board and concealed that he was not pursuing the exit, conduct that was dishonest and therefore in breach of section 172. The court added that deliberately deceiving the board will “always or almost always” be inconsistent with section 172. It also held that Saxon Woods had suffered unfair prejudice because Mr Costa’s conduct deprived it of the opportunity to achieve an exit.

Re BHS Group Ltd; Wright, Rowley, BHS and others v Chappell & Ors [2024] EWHC 1417 (Ch)

The joint liquidators of BHS companies brought proceedings against former directors following the group’s collapse. One important strand concerned the sale of North West House and related financing arrangements. The liquidators alleged breaches of sections 171–175, later also relying on the modified creditor-focused section 172 duty, and contended that Mr Henningson had taken a secret £300,000 commission connected with the transaction.

Leech J found that the sale issues did engage breaches of sections 171–175 and the creditor-interest duty, and he specifically found that Mr Henningson had accepted a benefit in breach of section 176 by reason of acting as a director in authorising the North West House sale or agreeing the associated ACE II transaction. He ordered him to account for the £300,000. The judge also held that Mr Henningson and Mr Chandler had failed to consider creditors’ interests in breach of the modified section 172 duty before agreeing ACE II and the Grovepoint facility. On some heads, however, he was not satisfied that particular breaches caused the company’s loss, so not every breach translated into recoverable compensation on that item.

Yodel Delivery Network Ltd v Corlett [2025] EWHC 3355 (Ch)

Mr Corlett, sole director and shareholder of YDLGP, acquired Yodel in February 2024 and sold it in June 2024. The dispute concerned a “Second Warrant Instrument” under which shares or warrants were said to have been granted to Shift and Corja. Yodel argued that the instrument and related resolutions were invalid. The court’s primary finding was that the warrant instruments were forgeries, created after the sale and backdated. The breach of duty analysis was therefore conducted on a hypothetical basis, assuming the documents were genuine.

On that hypothetical basis, Fancourt J accepted that Mr Corlett may subjectively have believed he was acting in Yodel’s interests, so there was probably no breach of section 172 in the narrow sense of the director’s subjective best-interests duty. But he held there was a breach of section 171: Mr Corlett had not acted in accordance with the company’s constitution, and the power to issue shares or warrants had been used for an improper purpose, namely, preserving value for Shift and Corja on a sale rather than raising capital or incentivising performance. He also found a breach of the creditor duty: Yodel was at least balance-sheet insolvent, and the director gave no thought to creditors’ interests when executing the instrument. Because the creditor duty had arisen, the shareholders could not ratify those breaches. The consequence was that the warrant instrument and certificates were void.

Guy Carpenter & Co Ltd v Willis [2026] EWHC 361 (KB)

Guy Carpenter alleged that senior personnel, including Mr Summers, who was a statutory director of one claimant company, had covertly assisted a team move to Willis by providing information about staff, pay, internal personnel, and by failing to disclose what was happening. Mr Summers admitted owing duties under sections 172, 175, and 176. Mr Fletcher, who was a Bermuda director, admitted materially similar duties.

Birt J expressly adopted the modern section 172 approach, including the objective honesty point drawn from Saxon Woods. He held that Mr Summers’ discussions with Ms Clarke about particular employees, especially giving at least implicit guidance to recruit Ms McIntosh and Mr Devlin, were breaches of duty. Mr Fletcher had already admitted breaches involving providing remuneration information, names, attributes, and contact details for recruitment purposes, and failing to disclose that conduct. The judge also held that Ms Clarke and Willis Re had induced the admitted breaches and were liable for dishonest assistance in those breaches of fiduciary duty. At the same time, he rejected some of Guy Carpenter’s more expansive allegations, such as a broader case that Mr Summers or Mr Fletcher had generally orchestrated mass resignations beyond what the evidence proved.

Practice Points

Some guidance for claimants and petitioners:

• Consider the chessboard. Might shareholder rights reshape the landscape and achieve the client’s aims? For a private company, members with at least 5% of the voting rights can require the circulation of a written resolution under section 292 CA and require directors to call a general meeting under section 303. If the directors fail to do so, members may call the meeting themselves under section 305. These are often more strategic early moves than immediately filing a petition.
  
  
• If the removal of an errant director is the real objective, consider the use of section 168 CA. Removal under section 168 is by ordinary resolution, but it requires special notice, and the legislation preserves the requirement that the company receive at least 28 days’ notice of the intention to move the resolution. In many cases, control of the board is more valuable than protracted litigation.
  
  
• Secure, if you can, the original board packs, minutes, deal files, and conflict declarations. Be sure to obtain the metadata for digital files and consider, where appropriate, if AI prompts used to generate documents fall to be disclosed and inspected.
  
  
• Consider circulating a statement, whether before or after proceedings are issued, to other shareholders to control the factual narrative.
  
  
• Check standing. Confirm who is on the register, whether there are nominee or trust issues and whether any rectification or preliminary issue is needed before issuing. The choice of forum and process is complicated and, in shareholder litigation, a defect can derail the entire case after substantial cost has already been incurred. The court has treated disputes about membership with procedural common sense, including stays or split trials to resolve register questions efficiently, but that does not abrogate the initial questions of standing and the Court may not always rescue a defective petition or claim: Starlight Developers Ltd, Re [2007] EWHC 1660 (Ch); [2007] BCC 929; Boston Trust Co Ltd v Verhoef[2021] EWCA Civ 1176; [2022] BCC 1. Sometimes, the question will be whether a section 125 CA claim needs to be filed before an unfair prejudice petition, or whether section 125 relief can properly be incorporated into a petition (as to which, see Re Contingent & Future Technologies Ltd [2023] EWHC 2451 (Ch); [2024] BCC 223 (Ch)).
  
  
• Decide the nature of the claim before drafting the facts. Is this a personal claim, a company claim, or both?
  
  For the company, a derivative claim seeks relief vested in the company and requires the court’s permission under Part 11. As part of that permission element, the court weighs the prima facie merits and discretionary factors, including good faith, whether an independent board would pursue the claim, prospects of ratification, the views of disinterested shareholders, and the adequacy of alternative remedies. Be realistic about derivative permission, especially on section 172. If your case is essentially “the board made a bad business decision,” permission will be difficult to obtain. Derivative claims are an exception to the principle that the company decides, through its proper corporate mechanisms, whether to sue, and the regime is intended for limited circumstances.
  
  For the shareholder, an unfair prejudice petition (section 994 CA) remains the principal personal remedy where the company’s affairs are conducted in a manner unfairly prejudicial to a member’s interests. Do not plead only “the director breached sections 171-177 and the company lost money.” Plead the personal prejudice in specific terms: exclusion from management, loss of voting influence, dilution, diversion of value from your shares, suppression of an exit, concealment, quasi-partnership unfairness, or deadlock. Relief is most often a share purchase order at fair value, with adjustments where appropriate. The same facts may sustain both a petition and a derivative claim, but the court has become more disciplined in policing the proper boundaries (see, e.g., Ntzegkoutanis v Kimionis [2023] EWCA Civ 1480 (CA)).

• If you are considering a derivative claim, consider seeking a Wallersteiner order (indemnification by the company): CPR r 19.19.
  
  
• Pleadings require careful thought. For instance, in a section 177 case, the transaction must be identified, along with what should have been declared, to whom, when, and why.
  
  
• Consider interim relief early. If the alleged breach involves a threatened allotment, asset transfer, board reshuffle, use of confidential information, or refusal to circulate a member resolution, the trial (even if expedited) may come too late. Injunctive relief can be the difference between preserving the case and merely pricing the damage afterwards. For instance, consider an injunction where the board blocks the circulation of a written resolution after a valid section 292 CA request. That can be a powerful shortcut where board obstruction forms part of the complaint.
  
  
• Remedies, remedies, remedies. What do you want? The remedial palette is extensive, and the court enjoys a wide discretion in many of these cases. Work out the end-game. State whether you want a buy-out, a no-discount valuation, an account of profits, equitable compensation, declarations, restoration of property, an account of disloyal profits, injunctions, rescission, or orders rectifying and regulating the conduct or governance of the company. If you want both shareholder relief and company relief, explain how they fit together and why the company-relief component is not a disguised standalone derivative action.

Responding to a claim? Consider these points:

• Is the claim an abuse of process? Ask whether the petitioner is really pursuing a company cause of action without going through Part 11. Ntzegkoutanis v Kimionisis authority for the argument that a petition is abusive if, in substance, it is a company-only claim camouflaged as an unfair prejudice claim.
  
  
• Separate shareholder prejudice from company loss. Even if there may have been a wrong to the company, that does not automatically establish unfair prejudice to the petitioner. Force the petitioner to identify the personal shareholder unfairness.
  
  
• Check standing (as above). Verify from the register.
  
  
• Go to battle in derivative claims. Permission is not always easy to obtain. The court is slow to authorise a claim that is really a challenge to commercial judgment. This is especially powerful against section 172 allegations.
  
  
• Frame alleged breaches as commercial judgment, not fiduciary breach(es), where the facts allow. If the pleaded case is really about strategic disagreement, imperfect business judgment, or a failed turnaround, rather than conflict, secrecy, or self-dealing, apply the key distinction between fiduciary duties (a breach) and commercial judgment (not a breach). That point has real force at any permission stage in a derivative claim.
  
  
• Where there is a disputed written-resolution request (as referred to above), scrutinise statutory compliance line by line. Check eligibility, voting threshold, wording of the proposed resolution, whether it could “properly be moved”, circulation mechanics, and any defects in the supporting material.
  
  
• If section 168 removal is mooted, consider procedural or technical defects carefully. There often is one that unravels the entire process.
  
  
• Demands to plead properly can be useful at the case-management stage. Force the claimant to specify: the power used, the improper purpose, the conflict, the benefit, the undeclared interest, and the loss or remedy. Diffuse allegations often become much weaker when broken down into the actual statutory duties.
  
  
• In derivative claims in particular, a claimant who assumes that the company-benefit nature of the claim will insulate them from adverse costs may be vulnerable to sensible without-prejudice correspondence.
  
  
• Mercy. The court is empowered under section 1157 CA to relieve a director who acted honestly and reasonably where it is fair to excuse them, but this avenue is not available for dishonesty.

Matthew sits as part-time Recorder and as a Deputy District Judge (civil) (authorised for Business & Property work). Matthew is a Member of the Chartered Institute of Arbitrators (MCIArb) available to accept appointments as an arbitrator to help parties resolve domestic and international business and property disputes outside of Court. He is also a Civil Mediation Council Registered Mediator.