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English High Court reiterates rule of thumb for Directors Duties

In a recent decision of the English High Court in Stobart Group Limited v William Andrew Tinkler in relation to a bitterly fought board-room conflict between logistics firm Stobart and its former CEO and founder Mr Tinkler, Justice Russen QC held that, inter alia, Stobart’s decision to remove Mr Tinkler as a director and to dismiss him as an employee was lawful and valid.

The Court found that Mr Tinkler acted in serious breach of his fiduciary and contractual duties owed to Stobart by:

  • criticising the Board’s management and Stobart’s business and agitating for the removal of Stobart’s Chairman, Mr Ferguson in private discussions with Stobart’s significant shareholders;
  • sharing confidential information with persons outside Stobart;
  • seeking the removal of Mr Ferguson by sending “seriously misleading” and “disgraceful” letter to Stobart’s shareholders and employees; and
  • orchestrating a petition to remove Mr Ferguson as the Chairman.

When deciding whether Mr Tinkler’s conduct was such as to justify Stobart’s decision, Justice Russen QC considered the legal principles of directors’ duties owed to the company. He analyzed Mr Tinkler’s conducts by referring to the following fiduciary duties of a director, which are already well established under the relevant laws:

  • the duty to act in good faith in what the director believes to be the best interests of the company;
  • the duty not, without the fully informed consent of the company, to place himself in a position where his own interests might potentially conflict with those of the company;
  • the duty to exercise independent judgment;
  • the duty only to exercise a power delegated to him by the company for the proper purpose(s) for which it was conferred; and
  • an equitable duty to provide shareholders with sufficient information to enable shareholders to make an informed decision on a matter which falls to their vote in general meeting.

The decision reiterates the rule of thumb for acting as directors, i.e. always bear in mind the fiduciary duties they owed to the company, but also emphasises the “collegial function” of the Board in support of the management of the company’s business in an efficient and competent manner. With these principles upheld, certain acts can be considered as serious breach of director’s duties as pointed out by the Court in this decision.

English High Court reiterates rule of thumb for Directors Duties

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