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Conflicts of interest and breach of fiduciary duty

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25/05/2016

The High Court decision in Haysport Properties Ltd and another v Ackerman [1] was faced with a claim brought by companies against a former director for breach of fiduciary duty on the basis that the director had caused the companies to provide security for another company, in which he was a beneficiary (that company being an offshore trust).

The giving of the security, and also an unsecured loan note, enabled the offshore company to proceed with a property transaction but there was no obvious benefit to the claimant companies in giving the security and the loan notes. The first company was left in the position of being an unsecured creditor to a company with negligible assets in a situation where there were prior ranking secured creditors. The second company had provided £10 million worth of security in return for only £25,000 per annum. The offshore company subsequently went into liquidation.

The defendant was the sole active director of the two claimant companies. The companies claimed that the director had breached his fiduciary duties in that he was conflicted in suggesting and causing the companies to enter into the transactions; he had failed to notify the claimants of the conflicts and had failed to ensure that they received separate advice in respect of the transactions.

The High Court had no difficulty in finding that the director had breached his fiduciary duties. The evidence showed that he had given no consideration at all to his fiduciary duties to the claimant companies and that he had exposed them to losses with no commercial justification from their perspective.

There was a second argument as to whether the claims were time barred. On this issue, the Court held that the director had a positive duty to disclose breaches of his fiduciary duties and had not done so. The limitation period did not start to run until the breaches were discovered. As the director was the sole active director, the claimants were not in a position to discover the breaches until such time as the director ceased to be the sole active director.

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[1] [2016] EWHC 393 (Ch)

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