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Directors’ duties owed to the company not its shareholders

A look at a recent case relating to the 2009 acquisition of Halifax Bank of Scotland by Lloyds TSB

The recent case of Sharp & Ors v Blank & Ors [2015]EWHC 3220 (Ch) relates to the 2009 acquisition of Halifax Bank of Scotland (“HBOS”) by Lloyds TSB (“Lloyds”), together with the connected recapitalisation of the enlarged group - both of which required shareholders’ approval.

The claimants argued that the defendants, a group of five former directors of Lloyds, owed various tortious and fiduciary duties directly to its shareholders as well as to the company itself. It was claimed that the duties were owed because the directors had received detailed disclosure from the directors of HBOS together with full access to HBOS books and records. This, therefore, provided the directors with a vastly superior knowledge of the transaction to that of the shareholders.

In defence, the defendants argued that the directors of a company do not owe fiduciary duties to the shareholders but to the company. The judge considered this well-established general principle saying that:

“The directors of a company owe fiduciary duties to the company. This is unexceptionable and flows from the fact that the directors are agents of the company and stewards of its affairs… it is the fact that they are directors of the company’s affairs which by itself gives rise to their fiduciary duties.” and “In general the directors do not…owe fiduciary duties to the shareholders collectively or individually (Peskin v Anderson [2001] 1 BCLC 372)…The directors direct and control the affairs and assets of the company; they do not direct or control the affairs or assets of the members”.

There is a practical element to keeping the company separate from its members as, if the directors owed duties to the shareholders, directors’ time could be consumed by spurious claims brought by minor shareholders. There may also be a potential conflict of interest should the interests of the shareholders clash with those of the company or each other.

The courts have however accepted that directors may owe duties directly to its shareholders but only where there is a “special relationship”.

The court considered the judgment in Bristol & West Building Soc. v Mothew [1998] which suggested that to owe a fiduciary duty a certain level of “loyalty” is required. This arises where someone has agreed to act in the interests of another and has put such interests first. The normal relationship between directors and shareholders of a large PLC is unlikely to give rise to “loyalty” on this basis. There must be something unusual in the nature of the relationship for such loyalty to arise. The case reaffirms that “it is not enough that the director has more knowledge of the company's affairs than the shareholders have: since they direct and control the company's affairs…Nor is it enough that the actions of the directors will have the potential to affect the shareholders”,as typically this will always be the case.

The types of company where a ‘special relationship’ typically exists are small family companies, where there is a family or personal relationship, or even a particular dealing or transaction, between the parties. Directors of this type of company ought to consider the extent of their duties to the shareholders. Where a level of loyalty can be implied, a director may want to consider whether he has subsequently assumed fiduciary duties direct to the company shareholders.

The decision is not new law, but is a useful reminder of the existing principles of fiduciary duties. Company directors and their D&O insurers will be pleased to know that it remains difficult for shareholders to establish that a fiduciary duty is owed in the absence of ‘special circumstances’.

If you are interested in finding out more about this or any other corporate issue, please contact Will Sharpe, a Partner in the Corporate department, on 0207 822 1931 or email

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