Fiduciary duties apply to directors and require them not to make a profit from their position and not to put themselves in a position where their personal interests conflict with their professional duties on obligations to the company of which they are a director.

Directors may be susceptible to breaching fiduciary duties in circumstances where they are involved in a transaction in which they have a ‘material interest,’ or where a director has misappropriated corporate property, information or opportunities for their own benefit.

A useful example of the stringency of the obligations is the case of Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134. The directors of Regal Hastings formed a subsidiary company with the intention that Regal should hold all the shares in the subsidiary company. They sought a lease of two cinemas for the subsidiary company, for a price of £5000. As Regal did not have the necessary capital to invest £5000 immediately, the directors decided that Regal would invest £2000 and the directors would personally invest £3000. The issue was whether the directors had breached their fiduciary duties by making a profit from the shares issued to them in the subsidiary.

Ultimately, the directors were liable for an account of profits, regardless of the fact that Regal could not contribute the full £5000 themselves or that the directors had acted honestly and bona fide.

The key takeaway is that if a director has ‘a material personal interest’ in a matter that relates to the affairs of the company at a meeting of directors, then the director will need to disclose the nature and extent of the interest to the directors. This is important because the only defence to a breach of the no conflict/no profit rule is that the director had fully informed consent from the company to do a particular act. In Regal Hastings, for example, the directors could have avoided liability by obtaining fully informed consent from the company before investing the money.

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