The recent Court of Appeal judgment in Towers v Premier Waste Management Ltd serves as a stark warning to directors who are not strictly compliant and wholly knowledgeable of their duties.
A director of a waste management company, accepted a free of charge loan of plant and equipment to renovate his house from one of the company’s customers without disclosing it to the company. He argued that the arrangement was “private, informal, ad hoc and amongst friends”.
The Court of Appeal held that the director had breached his fiduciary duties (particularly the duty of loyalty and the duty to avoid conflicts of interest). The director was ordered to pay to the company an amount representing what it would have cost him to hire the equipment on the open market, along with the costs of the action.
The director was held to have disloyally deprived the company of the ability to consider whether or not it objected to the diversion of the opportunity being offered to the company. It was irrelevant that the company did not suffer any loss, that the director did not make a valuable profit, that he did not act in bad faith or that, had the loan not been available, he would have not hired the equipment at commercial rates.
Directors' duties are now set out within the Companies Act 2006 (see our FAQ sheet which lists the directors' duties). It is clear from this case that commercial defences will not relieve directors of these strict duties. This decision acts as a harsh reminder to directors of the high threshold of caution required in approaching situations that could potentially lead to a breach of fiduciary duties. Disclosure in every situation is paramount.