Fiduciary Duties of Directors

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One of the duties that company directors need to comply with is fiduciary duties. This is so as company directors are said to be in a fiduciary relationship with the company. When directors are in a fiduciary relationship with the company, they are prohibited from doing any acts deemed prejudicial to the company. In other words, by applying the judgment in Hospital Products Ltd v United States Surgical Corpn, directors cannot and should not use his position to receive personal gains.

The traditional view is that the directors owed a fiduciary duty to the company. This is the reason why directors are prohibited from receiving personal gain from their status as directors in a company. The nature of the relationship i.e. fiduciary relationship between directors and a company rendered the directors to act for the best interest of the company. This point can be supported by looking at Section 132(1) of the Companies Act 1965 which states that a director must act in bona fide when exercising his powers for a proper purpose and that he must act in the best interest of the company.

Nonetheless, there is an issue of whether the directors also owed fiduciary duties to other persons besides their fiduciary duties to the company. In relation to shareholders, the court decided in the case of Percival v Wright that the directors did not owe any fiduciary duty to disclose the negotiations made when they intended to purchase shares. However, this case also did not lay down any rules that directors of a company can never be in fiduciary relationship with shareholders. For instance, in Allen v Hyatt, the court held that the directors in the case had placed themselves in fiduciary relationship with some of the shareholders in an agency capacity. This case shows that even though in Percival v Wright the directors did not owe any fiduciary duties to the shareholders, the possibility that there exist a fiduciary relationship between directors and shareholders of a company cannot...
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