HAS A DIRECTOR IN MY COMPANY BREACHED THEIR DUTIES?
While directors are given an established amount of discretion to run the company as they deem fit, they can only act up to the powers bestowed upon them by the company's constitution, primarily its articles of association.
Therefore, they have a wide range of essential duties, including acting in accordance with the company's constitutional documents and promoting the company's success for its member’s benefit.
If a company director breaches their fiduciary duties, they could be faced with civil action and, in other cases, criminal sanctions. Breach of directors' duties and the resulting legal action taken against a director can have significant consequences for them, shareholders, the company and creditors.
If a director violates their fiduciary duties towards the company, the company can take legal action against the director. This action is usually brought about by the stakeholders seeking restitution for any loss or damage the company incurs.
Depending on the type of misconduct, the company has several legal options available. The company could ask the director to pay compensation, account for any profits made, rescind contracts the director has entered into or return company property.
Some duty breaches are considered criminal offences and can result in fines and disqualifications for the director or even imprisonment if the case is severe. Directors are subject to several fiduciary duties, which are set out in the Companies Act 2015
In addition, directors are responsible for considering or acting in the interests of the creditors working with the company, especially when bankruptcy is inevitable, and keeping the company's affairs confidential.
If a director is found to have breached their fiduciary duties, there are some claims that a company involved in the dispute can bring.
A director can get the following consequences in case of a breach of his duties; -
Restitution of profits.
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Where the company incurs a loss due to a director's violation of duties, a court may order any profit the director gained in connection with the breach to be relinquished to the company.
Removal from office
Shareholders can remove a director from office if more than half of the company's shareholders vote for this. Removal of a director can be permanent or temporary, depending on the severity of the breach in the view of the shareholders.
Return of company property
Where a property has been inappropriately transferred or taken by a director, its return can be required.
An interim injunction
A court can issue an injunction to prevent the director from continuing with the breach of their duty and to prevent further losses.
Damages or compensation
Where a director's breach of duty has resulted in financial loss, a court can order payment of damages and compensation from the director personally. It means that a violation of directors' duties can expose a director to personal liability, the possibility of losing personal assets, including their home, and the risk of bankruptcy.
A fine under criminal law
Some breaches are considered so severe that they have been criminalized. Therefore, a court can order the director to pay fines to the governing body in that jurisdiction.
Seeking advice from legal professional bodies can assist in which actions to take if a director breaches their duties in a company. It is crucial since it helps to avoid investing so much money and time in court proceedings where shareholders could have settled misconduct within the company. For any assistance, please book an appointment with Gracen Law lawyers at [email protected].