Boardroom Disputes And Directors' Duties

Boardroom disputes and directors' duties

A recent High Court decision serves as a reminder of the collective nature of board responsibility and provides legal and practical pointers both for a disaffected director and a board dealing with such a director.

Facts

The case relates to the highly public disagreement between Mr Tinkler (T), an executive director (and former chief executive) of Stobart Group Ltd, a FTSE 250 company, and the majority of the board, in particular the chairman of the board whom T wished to see removed.

The case revolved around various steps that T took in advance of the company's 2018 Annual General Meeting (AGM). These included:

raising his concerns about the board's management with key shareholders without first raising them with the board; writing an open letter in his capacity as an executive director, which the court described as "seriously misleading", to the company's shareholders encouraging them not to re-elect the chairman; forwarding a copy of the letter to the company's employees, and orchestrating an employee petition asking the chairman to step down; and sharing confidential budget information outside the board. The court also considered the steps taken by the board in response. These had included establishing a committee of directors to consider T's future; using a power in the company's articles to remove him as a director before the AGM and subsequently again the day after the AGM (at which he had successfully moved a resolution to have himself re-elected); and transferring treasury shares into an employee benefit trust before the AGM.

A significant part of the case centred around directors' duties, with both parties alleging breaches by the other. Although the company was incorporated in Guernsey and the relevant directors' duties were those at Guernsey law, the court acknowledged that these were the same as the fiduciary duties that a director of an English company owed before the Companies Act 2006.

Decision

The court found that T's various actions put him in breach of certain fiduciary duties that he owed to the company. The board's actions with respect to the treasury share transfers also amounted to a breach of fiduciary duty. Particular points of interest are as follows.

The duty to exercise independent judgment (now codified in the UK as section 171 of the Companies Act 2006): This duty operates on each director in the context of being a member of the board of directors. It exists to...