Premier Waste Management Ltd v Towers [2011]
This case presents a timely reminder to directors regarding the extent of their duties to a company. In particular, directors need to be aware of just how far their fiduciary duties and their duties of loyalty extend when conflicts of interest arise.
Tough economic times and poor financial performance have focussed a great deal of attention on good corporate governance. The scope of directors' duties should not be underestimated even if directors consider their actions minor.
Premier Waste suggests that courts will enforce directors' duties very strictly.
Facts
Mr Towers was a director of Premier Waste Management Limited, a waste disposal business. In 2003 Mr Towers borrowed some dilapidated plant equipment from one of the company's customers, a supplier of plant and machinery. The machinery was borrowed by way of a free loan and organised through an employee of the company on behalf of Mr Towers. Although it was only used for approximately six months, it remained on Mr Tower's property until 2008.
The arrangement was not disclosed to the company which only became aware of its existence in 2008 when it received a £45,000 invoice for rental over the whole five year period from the customer.
The Claim
The company issued proceedings against Mr Towers for breach of his duties to the company and also against the customer on the basis it was not liable to pay for the equipment rental. The latter claim was settled out of court between the parties.
The claim against Mr Towers focused on his breach of fiduciary duty, his breach of duty loyalty to the company and the duty not to profit from his position as a director of the company.
The court decided in favour of the claimant. Mr Towers was ordered to account to the company for the six months usage of the equipment, being the period he was actually considered to be in breach of his duties to the company. Mr Towers appealed but the appeal was dismissed.
Conclusion
In its decision the court refused to exercise its discretion to grant Mr Towers relief under s1157 Companies Act 2006 whereby a director may be relieved of his liability for breach of duty, where he has acted honestly and reasonably and ought fairly to be excused, having regard to all the circumstances of the case.
The court did not consider that the minimal value of the benefit received, the dilapidated state of the equipment, the informal nature of the arrangement or the fact that the company had not suffered loss were relevant to the fact that Mr Towers had breached his duties as a director by obtaining a personal benefit by reason of his directorship .
If you need advice in respect of directors' duties Rollingsons has experienced lawyers who can assist you; for more information please contact James Crighton via e-mail jcrighton@rollingsons.co.uk or by telephone on 0207 611 4848.
