What is a "Fiduciary Duty"?

Certain people in certain positions owe to a person or persons a duty of trust in law. The word “fiduciary” in this context means a position of the utmost trust. By way of example, a trustee owes a duty of trust to the beneficiaries. The Trustee owes a duty to carry out the wishes of the settlor and should not do any act to the detriment of the beneficiaries. This is the position of Trust that exists in the case of a Trust. Similar to this is the position of an executor of a will who, once again, acts as a trustee on behalf of the beneficiaries and owes a similar obligation to the beneficiaries.

Who has a Fiduciary Duty and towards whom?

As stated above, a trustee owes the duty to a beneficiary; an executor of a will to a beneficiary; an administrator in an intestacy where there is no will; a director of a company has a fiduciary duty towards the shareholders. It is a legal duty which can be onerous, must be treated seriously as any default can lead to serious consequences.

What are the remedies if there is a breach of Fiduciary Duty?

There are many situations where a breach might arise and the consequences will depend upon the nature and extent of the breach as well as the intention of the person who is in breach. If a Trustee for example is in breach, he may well be asked to make up the loss himself. If an executor is in breach, he too will be personally accountable. If he has invested in shares not of a type allowed in the will, he will be in breach and personally liable for any financial loss that occurred as a result of his breach.

A director of a limited company has obligations towards the shareholders. It is a position of the utmost trust and if he fails to exercise reasonable care, for example preferring a creditor to another prior to liquidation of the company, or trading whilst insolvent, he may be on the receiving end of proceedings from the liquidator seeking to make him personally liable. Even a shadowe director who might not be in name a director but is in actual fact a director in practice can also be held to be personally liable.

What constitutes a breach of Fiduciary Duty?

A Director of a limited Company must act in the best interests of the Company, free of any conflicts of interest. So, the Director cannot use Company property for their own personal use as the Company is in law a totally separate entity.

A breach of fiduciary duty does not have to be fraud as such. A breach of fiduciary duty is a civil action in which the Claimant claims damages for lost profits arising out of a breach of duty by a Director or person in a fiduciary relationship.

Damages may also be recovered in negligence if it is held that a Director has failed in their duties towards the Company. A Director can be guilty of carelessness or recklessness and, where this is proven to be the case, the Director may well to be found to be responsible for any resulting loss to the Company's shareholders.

Misfeasance

Misfeasance, in the context that we are referring to here, is any perceived wrongdoing by the Director of a Company, as defined by the Companies Act and the 1986 Insolvency Act. These acts specify that Directors of a Company must not:

• Misapply Company money
• Misapply or retain Company property
• Breach any duty of trust when dealing with Company money or property
• This is referred to in Section 212 of the 1986 Insolvency Act which addresses the question of misfeasance and indeed makes a Director personally liable to pay back to the Company the amount of the loss caused by any misfeasance to the extent that the Court orders.

Defending a Misfeasance case

Misfeasance is a serious allegation brought by a Liquidator against a Director and the onus at all times rests with the Liquidator. Proving a case of misfeasance requires documentary and circumstantial evidence and questions of fact as well as law. In effect, the Director will have to be shown to have been party to what amounts to a dereliction of duty.

Here at The Legal Company we have extensive experience in defending Directors against claims of misfeasance. Our nationwide panel of lawyers includes many specialists in this particular area of law, and we can provide you with the best possible legal counsel if you find yourself in this position.

Whether you are a Claimant or a Defendant, a breach of fiduciary duty case can be an expensive and time-consuming affair. The Legal Company offers you a risk-free solution with no legal costs:

• An initial assessment within two hours of your application
• A barrister's opinion within a few days
• Insurance cover for all legal costs within one month