Director must compensate shareholders over breach of duty

A director who breached his duty to his company’s shareholders has been told he must compensate them through a share purchase order.

The case involved the chairman of a large passenger car service. He also became the director of a new start-up company providing bins for the disposal of cigarette butts. The plan was to sell advertising space on the bins to local businesses. If some spaces on the bins were not taken up, the car service would be entitled to use them.

The business struggled as not enough advertisers could be found. The director’s car service took up the empty advertising spaces and the firm ordered 7,000 new bins. The car service paid £5 for each space to begin with and then nothing at all.

In February 2015, the car service was taken over and decided to stop advertising on the bins.

This put the bin company out of business. Its shareholders took legal action against the director, claiming he had breached his duty to them.

The court found in their favour. It held that the director had entirely abandoned the company’s best interests in favour of his car service’s best interests.

He caused the company to buy 7,000 new bins which could only benefit his car service. He allowed it to have those bins for free from March 2011. That was the grossest possible breach of his duty to act in good faith in the best interests of the bin company. The breach constituted unfair prejudice to the shareholders.

Everything that had happened was down to the director alone and a share purchase order was made against him. The price of the shares would be set at their price before the director’s actions devalued them.

Please contact Simon Porter about the issues raised in this article or any aspect of company law.