Directors Duties: A Refresher

When the Companies Act 2006 came into force, company directors were deluged with advice, solicited and unsolicited, about the directors duties provisions. It does no harm to be reminded from time to time that there can be consequences for a director if he fails in his duties.

Case facts

One such reminder is the Appeal Court case of Towers v Premier Waste Management Ltd [2011] EWCA Civ 923. The basic facts were straightforward. In 2003 Mr Towers, who was then a director of Premier Waste Management, borrowed an excavator and a dumper for his own personal use from a Mr Ford who was a customer of the Company. This was arranged by Mr Towers through a manager in his division of the Company. Mr Towers did not tell his board about the arrangement. He used the equipment for approximately 6 months in 2003 but only returned it in 2008 after Mr Ford had invoiced Premier Waste Management for £45,825 hire charges.

Premier Waste Management brought proceedings against Mr Ford for a declaration that it was not liable to pay the hire charges and against Mr Towers for the profit received by him from the arrangement. The Appeal Court had to decide only on the dispute between Mr Towers and Premier Waste Management. The amount involved was extremely modest and we can only assume that the parties considered that there were matters of principle at stake.

The decision

As the event in question pre-dated the 2006 Act, the Appeal Court had to decide the issue on the basis of the common law principle that a director has a fiduciary duty to his company. That fiduciary duty remains but the 2006 Act now also imposes specific statutory duties which have very similar effect.

The Court held the applicable directors duties were that of loyalty and the duty to observe the no conflict principle. This embraces a duty on the director not to make a secret profit for himself. In accepting the loan of the equipment from Mr Ford without disclosing it to his board of directors, Mr Towers had disloyally deprived Premier Waste Management of the ability to consider whether the Company objected to the diversion of an opportunity offered by one of its customers away from itself to the director personally.

The Appeal Court upheld the decision of the lower court that Mr Towers was in breach of his fiduciary duty and was liable to account to the Company for the value of the benefit obtained from the loan of the equipment. It made no difference that Premier Waste Management had not, in fact...