In some instances, shareholders of a company may be able to file a claim against a director who has breached his or her fiduciary duties. Shareholders can only initiate litigation if they file a claim in the company’s name and seek compensation for the company’s loss, not their own. These are referred to as derivative claims.
There are a number of safeguards in place to prevent the abuse of derivative claims. For instance, a court must be persuaded that the shareholder is acting in good faith and that the action is in the best interests of the company. In this article, Can Shareholders Sue Directors?, we consider the process and mechanism involved.
Please click here to find out more about our Commercial Litigation services.
Free initial telephone discussion
For a free initial discussion with a member of our New Enquiries Team, get in touch with us today. We are experienced in dealing with all the legal aspects of shareholder disputes. Once instructed, we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you are on the best possible footing from the start. Simply call us on 0345 901 0445 or click here to make a free enquiry and a member of the team will get back to you.
What are the obligations of a director?
The Companies Act of 2006 outlines a number of fiduciary duties imposed on directors:
- to act within the authority granted by the company’s constitution;
- to act in a fashion that will most likely contribute to the company’s success;
- to act with reasonable care, skill, and diligence in the performance of their duties;
- refuse to accept benefits from third parties;
- avoid potential conflicts of interest;
- to exercise independent judgement; and
- to declare any interest in a transaction or arrangement in which the company intends to engage.
In addition to their statutory obligations, directors must also consider or act in the best interests of the company’s creditors, particularly when insolvency is a possibility, and maintain the confidentiality of the company’s affairs.
If a director fails to comply with these requirements, it may be considered a breach of fiduciary duty, in which case the claimant may seek compensation for lost profits or director neglect.
What rights do shareholders have?
While they are not directly involved in the company’s operations, shareholders still possess privileges in and around the business. These include:
- Influence over management. By determining who sits on the board of directors, they have the authority to influence who is appointed to management positions.
- Voting privileges at an organisation’s annual or general assembly
- The ability to vote on any substantial changes prior to their implementation. Perhaps the most important right of a shareholder, this provides them with additional influence over how a company is managed.
- The legal right to seek redress for wrongdoing. When a shareholder believes their rights have been violated or there has been a breach of the shareholder agreement, they have the legal right to file a lawsuit against the company.
If there is a breach of obligations by a director, what can be done?
When a director is found to be in breach of his or her fiduciary duties, the disputing company may file the following claims:
- Repayment of profits. If the company has suffered a loss as a result of a director’s misconduct, a court may order the director to return any personal profit made in connection with the conduct.
- Restoration of property. If a director has taken possession of company property, the company may seek to recover the property.
- Injunctive relief. An injunction is a claim that a company may initiate against a director to prevent them from breaching or continuing to breach their duties.
- The termination of a contract. This can be reversed if a director signs a contract that goes against the company’s intentions.
- A company may be entitled to compensation if it has suffered a loss as a result of a director’s negligent breach of duty.
How we can help
We have a proven track record of dealing with shareholder disputes. We will guide you through the process and ensure all checks are carried out swiftly and efficiently. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
Please click here to find out more about our Commercial Litigation services.
How to contact our Commercial Litigation solicitors
It is important for you to be well informed about the issues and obstacles you are facing. Expert legal support is crucial in terms of reducing risk, saving you money and ensuring you achieve a positive outcome.
To speak to our Commercial Litigation solicitors today, simply call us on 0345 901 0445, or allow a member of the team to get back to you by filling in our online enquiry form. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Comments are closed.
