Breach of Fiduciary Duty for Directors in the UK

If you run a company, you’ll hear the phrase “fiduciary duty” sooner or later. It sounds technical, but it boils down to this: directors and others in positions of trust must act in the best interests of the company. When they don’t, it can be a breach of fiduciary duty – and that can mean serious legal and commercial consequences.

In this guide, we’ll break down what a breach of fiduciary duty looks like under UK law, who owes those duties, common risk areas for SMEs, and the steps you can take to prevent issues or respond quickly if something goes wrong.

The aim is to keep your business protected from day one, support confident decision-making, and minimise the risk of disputes or claims derailing your growth.

What Is A Fiduciary Duty In A UK Company?

In a business context, a fiduciary duty is a legal obligation owed by someone in a position of trust and confidence to act in the best interests of another. For UK companies, the classic fiduciaries are directors. They’re required to act for the good of the company as a whole, not for personal gain or a particular shareholder bloc.

Key director duties are set out in the Companies Act 2006 (sections 171–177). In plain English, they include duties to:

• Act within powers – follow the company’s constitution and only exercise powers for proper purposes.
• Promote the success of the company – consider long-term consequences, employees, suppliers, customers, community and the environment.
• Exercise independent judgment – don’t blindly follow others or external directions.
• Exercise reasonable care, skill and diligence – meet the standard of a reasonably diligent director.
• Avoid conflicts of interest – don’t put yourself in a position where personal interests conflict with the company’s interests.
• Not accept benefits from third parties – where it could give rise to a conflict.
• Declare interests in proposed transactions or arrangements – be transparent with the board.

While these are statutory duties, the concept of fiduciary duties also exists at common law (judge-made law). In practice, this means the expectations on directors are wide-ranging and taken seriously by courts.

Fiduciary-like obligations can also arise for others with control or influence, such as shadow directors or senior managers, depending on the circumstances.

What Counts As A Breach Of Fiduciary Duty In The UK?

A breach happens when a fiduciary fails to meet the standard of their duty. Common examples in small and medium companies include:

• Unapproved conflicts – participating in decisions where the director has a personal interest without disclosure or proper authorisation.
• Self-dealing – awarding contracts to a connected business on non-arm’s-length terms.
• Taking corporate opportunities – diverting a business opportunity that belongs to the company to a director or their associate.
• Misuse of confidential information – using company information for personal gain.
• Exceeding powers – acting outside the company’s constitution or beyond authority granted by the board.
• Failing to exercise reasonable care and diligence – for example, rubber-stamping transactions without adequate oversight.

Breaches often intersect with other legal issues. For instance, acting outside the company’s constitution could also be a breach of the Articles of Association, while undisclosed conflicts might violate internal policies and the Companies Act.

It’s also worth remembering that improper decision-making processes can open the door to claims. Keeping robust records (for example, via board resolutions and meeting minutes) is practical protection if a decision is later questioned.

Who Can Bring A Claim And What Are The Consequences?

When fiduciary duties are breached, potential claimants can include the company itself (acting through the board, independent directors, or in some cases a shareholder derivative action), insolvency practitioners if the company is insolvent or nearing insolvency, or affected shareholders via specific mechanisms.

Possible remedies include:

• Injunctions – stopping a threatened or ongoing breach.
• Damages or equitable compensation – recovering losses caused to the company.
• Account of profits – requiring the fiduciary to hand over gains made from the breach.
• Setting aside transactions – for deals tainted by conflicts or lack of authority.
• Director disqualification or removal – particularly for serious or persistent breaches.

Aside from legal remedies, there’s reputational risk, loss of investor confidence, and disruption to operations. For SMEs, even a relatively modest dispute can consume management time and cash – so prevention and early response are critical.

How Can Small Businesses Prevent A Breach Of Fiduciary Duty?

Good governance doesn’t have to be complicated or bureaucratic. A handful of practical measures go a long way to reducing risk and making decisions easier to evidence.

1) Use Clear Governance Documents

Your constitution (Articles of Association) sets the foundation for how powers are exercised and decisions are made. Supplement it with a well-drafted Shareholders Agreement that covers board composition, reserved matters, information rights, and processes for handling conflicts. This clarity helps directors understand their remit and where they must seek approval.

If you expect founders to serve as directors and employees, make sure their role is documented with an appropriate Directors Service Agreement covering duties, remuneration, confidentiality and post-termination restrictions. This keeps expectations aligned and protects the business.

2) Establish A Conflicts Framework

Conflicts will arise – the key is to manage them properly. Put in place a concise Conflict of Interest Policy with practical steps for identifying, declaring, documenting and (where appropriate) authorising conflicts. Maintain a register of directors’ interests and revisit it regularly.

For transactions where a conflict exists, ensure proper disclosure, consider independent advice, and use formal approvals (e.g. an unconflicted board committee or shareholder consent where required). Proper procedures can turn a risky situation into a compliant one.

3) Minute Decisions And Resolutions

Decision-making discipline is your friend. Circulate papers in advance, encourage questions, and minute key discussions – especially where conflicts, risks or alternative options were considered. Approvals should be documented via formal directors’ meetings and written resolutions. If you need an extra paper trail, use a short form director’s resolution to confirm authority for specific actions.

4) Control Authority And Delegations

Make it clear who can sign contracts or authorise payments and at what thresholds. A schedule of delegated authority (with spend limits and dual sign-off) helps avoid directors accidentally exceeding powers, and reduces the risk of employees entering into commitments the company hasn’t approved.

If directors or officers are worried about personal exposure, it’s common to put in place a Deed of Access and Indemnity and to maintain appropriate D&O insurance. This doesn’t excuse misconduct, but it supports diligent directors acting in good faith.

5) Build A Culture Of Independence

Fiduciary duties require independent judgment – the board shouldn’t simply rubber-stamp major shareholder directions or external investor preferences. Encouraging healthy debate, using independent non-executives as you grow, and seeking external advice on material transactions all strengthen compliance and decision quality.

Red Flags And Common Scenarios To Watch

Catching issues early can prevent a breach from becoming a dispute. Here are scenarios where directors need to slow down and follow the process carefully.

• Related party deals: Any contract between the company and a director (or connected party) needs robust disclosure and approval. Use conflict protocols and consider independent valuation.
• Side projects: A director launching a similar venture, or moonlighting for a competitor, can raise conflict and “corporate opportunity” concerns.
• Information advantage: Using confidential insights gained as a director to benefit another business, even if you think the company “wouldn’t pursue it,” risks breaching duties.
• Financial stress: As a company nears insolvency, focus shifts to creditor interests. Decisions that might have been acceptable in good times may be scrutinised differently if solvency is in doubt.
• Process gaps: Major commitments approved informally (e.g. “agreed on WhatsApp”) without proper authority, or acting contrary to the Articles or recorded resolutions, are common sources of trouble.

If any of these arise, pause, get the conflict on the record, seek advice where needed, and ensure the right decision-maker provides approval before proceeding.

What Should You Do If You Suspect A Breach Of Fiduciary Duty?

Act promptly and proportionately. A calm, structured response reduces risk and keeps everyone focused on solutions.

Step 1: Preserve Evidence

Secure relevant documents, emails, board packs and contracts. Ensure you have the latest cap table, PSC register, and any declarations of interest. Avoid deleting or editing records; you may need a clean audit trail.

Step 2: Identify The Duty And The Risk

Map which duty may be engaged (conflict, corporate opportunity, authority, etc.), who is involved, any immediate damage, and potential ongoing exposures. Understanding the risk helps decide whether to seek an injunction, pause a transaction, or commence internal inquiries.

Step 3: Use Independent Decision-Making

Ensure conflicted directors step back. Consider forming an independent committee to manage the issue, take advice, and decide next steps. Keep detailed minutes and record all disclosures and recusals.

Step 4: Seek Legal Advice Early

Timely advice can save cost and prevent escalation. Lawyers can help assess whether there is a breach, options for remedy or settlement, and how to communicate with stakeholders. Where appropriate, consider alternative dispute resolution before litigation.

Step 5: Remediate And Strengthen Controls

Depending on the outcome, you may unwind a transaction, recover profits, or agree tighter oversight. Use the experience to refine conflict procedures, delegations, and board practices – and, if necessary, revisit your Shareholders Agreement and internal policies so expectations are crystal clear.

Frequently Asked Questions About Fiduciary Duties

Are All Directors Treated The Same?

All statutory directors owe the core duties, though the “care, skill and diligence” standard reflects each director’s actual knowledge, skill and experience. Executive directors and founder-directors with deep domain expertise may be expected to meet a higher standard in their area.

What About Shadow Or De Facto Directors?

Individuals who act as directors or whose instructions the board habitually follows can be treated as owing fiduciary duties even if they aren’t formally appointed. If an investor, founder or advisor is heavily influencing decisions, be mindful of the risks and keep roles and authorities well-defined.

Can Shareholders Authorise A Conflict?

In many cases, yes – the Articles might permit board-level authorisation for certain conflicts, and shareholders can approve specific transactions. The key is transparency and following the correct process. Where the Articles are silent or restrictive, consider a tailored amendment via board and shareholder resolutions with advice on the correct thresholds or any special resolution requirements.

Can We Protect Diligent Directors From Personal Risk?

Yes. Keep procedures tight, maintain D&O insurance, and consider a Deed of Access and Indemnity. None of these will cover intentional wrongdoing, but they provide comfort for directors acting in good faith and with proper care.

Key Takeaways

• In the UK, directors owe fiduciary duties under the Companies Act 2006 and common law, including duties to promote the success of the company, avoid conflicts, and act within powers.
• A breach of fiduciary duty can arise from undisclosed conflicts, misuse of company opportunities or information, exceeding authority, or failing to exercise proper care and independent judgment.
• Consequences can include injunctions, damages, account of profits, setting aside transactions, and potentially disqualification – plus serious disruption and reputational harm for your business.
• Prevention is practical: align your Articles with a clear Shareholders Agreement, adopt a Conflict of Interest Policy, minute decisions via proper directors’ meetings and resolutions, and control authority and delegations.
• If you suspect a breach: preserve evidence, identify the duty and risk, exclude conflicted decision-makers, seek legal advice early, and remedy issues while strengthening your controls.
• Supporting documents like a Directors Service Agreement and a Deed of Access and Indemnity can reduce friction, protect diligent directors, and reinforce good governance.

If you’d like tailored help setting up your governance documents, managing conflicts, or responding to a suspected breach of fiduciary duty, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.