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Case law: Court clarifies responsibilities of dissenting directors in boardroom disputes

Dissenting directors in a boardroom dispute should not 'go public' with the dispute or with confidential company information, and confine these to debate and discussion within the boardroom - or risk breaching their statutory duty to exercise independence in their role, a ruling makes clear.

April 2019

This update was published in Legal Alert - April 2019

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

A boardroom dispute was played out against a backdrop of a falling share price, allegations of misuse of company funds, the dismissal of a dissenting director - and his reappointment by shareholders and his summary removal the next day - and support for the dissenting director from a majority of the shareholders. However, the dissenting director:

  • talked to major shareholders, criticising other members of the board, and campaigned for the chairman of the board to be removed;
  • revealed confidential information to non-directors;
  • corresponded with non-directors, including shareholders, about the dispute; and
  • orchestrated a petition and a letter from senior employees to the board.

The Court ruled that the director's actions breached his statutory company law duty to exercise independent judgement. Particularly, it said that the duty does not authorise a director to take board disputes - particularly confidential information - outside the boardroom without board consent. The Court said:

  • ‘…the duty to exercise independent judgment is one that operates upon each director in the context of him operating as a member of the board of directors. This obligation comes with the office of director and does not carry with it some kind of entitlement or licence for an individual director to go off and do his own thing, independently of the board, in relation to matters that fall within the sphere of management of the company's business. It is only as a member of the board that the director has been entrusted within information about management matters in the first place. Therefore, any discussion by him of those matters with shareholders should either be in the presence of the rest of the board or with the prior approval of the board…
  • ‘The duty upon each director to exercise an independent judgment exists in order to support the board's management of the company's business in an efficient and competent manner. By invoking it to justify what might be, or border upon, freelance activity on his part, a director is likely to hinder rather than contribute to the board's management of the business.’

The correct action would have been to make any points which were at odds with the views of the majority of directors at a board meeting, and ask that they be included in the minutes.

The Court also found that the dissenting director had acted in breach of his fiduciary and contractual duties in what amounted to serious breaches.

 

Operative date

  • Now

Recommendation

  • Dissenting directors in a boardroom dispute should avoid 'going public' with the dispute or with confidential company information, keeping those confined to debate and discussion within the board - or risk breaching their statutory company law duties including the duty to exercise independence in their role.

Case ref: Stobart Ltd v Tinkler [2019] EWHC 258

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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