Shareholder Consent for Breach of Duty by a Director

It has long been established that a company director is in breach of his fiduciary or statutory duty if he exploits for his personal gain

(a) opportunities which come to his attention through his role as director or

(b) any other opportunities which he could and should exploit for the benefit of the company.

Even so, in such circumstances if the shareholders, with full knowledge of the relevant facts, consent to the director exploiting those circumstances for his own personal gain then that conduct is not a breach of the fiduciary or statutory duty.

However, these statements give rise to an issue as to the extent to which a director can rely on shareholder consent if this is not given expressly.

In the case of Sharma v Sharma [2013] EWCA Civ 1287, the Court of Appeal were asked to consider these issues. The facts were that a director had acquired several dental practices for her own benefit in circumstances where two company shareholders were aware of these facts but had remained silent on the issue. This was a transaction in which she stood to gain personally from an opportunity that could have been taken up by the company. The court was asked to consider the extent to which mere acquiescence on the part of the shareholders in such circumstances could amount to consent to the extent that this would operate as a defence by the director to any suggestion that she was in breach of her fiduciary duty.

It is clear that when the court is asked to consider conduct which amounts to less than express consent, it will have to consider all of the circumstances. However, the court decided that if the shareholders, with full knowledge of the relevant facts, acquiesce in the director’s proposed conduct then that may be enough to constitute consent. However, consent cannot be inferred from silence unless

(a) the shareholders know that their consent is required; or

(b) the circumstances are such that it would be unconscionable for the shareholders to remain silent at the time and then object after the event.

When determining whether or not the shareholders had “full knowledge of the relevant facts” the court decided that it was not necessary for the shareholders to understand that the facts might constitute a breach of fiduciary or statutory duty; simply that they were aware of the facts relevant to the director’s conduct.

On the facts of this case, the court decided that the fact the shareholders had remained silent during the discussions about the director’s proposals to purchase new dental practices was sufficient to constitute consent. Therefore the director could not be held liable under a claim for breach of fiduciary duty.