Written by Jeremy Boyle Last Updated: 5 November, 2025When you accept a directorship, you take on a position of trust. When that trust is broken due to a breach of fiduciary duty, the fallout can be swift and serious, damaging reputations, careers, and businesses alike.
In this guide, we explain what a breach of fiduciary duty looks like, the potential consequences, and how to protect yourself and your company from costly disputes.
- Understanding fiduciary duties
- When does a breach of fiduciary duty occur?
- Breach of fiduciary duty and negligence
- Consequences of failing your fiduciary duties
- Board of directors responsibilities
- Breach of fiduciary duty claims
- Breach of fiduciary duty remedies
- Breach of fiduciary duty process
- Breach of fiduciary duty limitation periods
- How to respond to allegations of breach
- How to avoid a breach of fiduciary duty
- FAQ’s on fiduciary duty
- Contact our fiduciary duty solicitors today
Understanding fiduciary duties
A fiduciary duty arises when one person – the fiduciary – is entrusted to act on behalf of another. In the case of company directors, that trust is owed to the company itself. Fiduciary duties ensure that directors act in the company’s best interests, exercise independent judgement, and avoid conflicts between personal and corporate gain.
The Companies Act 2006 sets out key fiduciary obligations for directors, including:
- Acting within the powers granted by the company’s constitution
- Promoting the success of the company for the benefit of its members
- Exercising independent judgement, reasonable care, skill, and diligence
- Avoiding conflicts of interest
- Not accepting benefits from third parties
- Declaring any interest in proposed or existing transactions.
A breach of these duties can expose directors to personal liability and serious professional consequences. For a deeper overview, read our fiduciary duties guide.
When does a breach of fiduciary duty occur?
A breach of fiduciary duty happens when a director acts against the company’s interests or fails to meet one of the legal duties owed to it. Breaches can arise through deliberate misconduct, but also through carelessness, weak governance, or poor judgement.
Common examples of breach of fiduciary duty include:
- Acting beyond powers: Making decisions outside of the company’s constitution.
- Conflict of interest: Approving a contract with a supplier in which the director has a hidden financial stake.
- Misuse of company assets: Using company funds to pay personal expenses or fund unrelated ventures.
- Unauthorised profit: Diverting a business opportunity meant for the company to a separate entity that the director controls.
- Improper influence: Following shareholder or third-party instructions instead of exercising independent judgement.
- Failure to disclose: Not declaring conflicts or failing to document board decisions properly.
- Negligence: Failing to exercise reasonable care, skill, and diligence expected of a director in the same position.
Even honest mistakes can amount to a breach if the conduct falls short of the standards expected of a reasonably diligent director.
In recent years, a breach of directors’ fiduciary duties has been a central issue in many company insolvency investigations – especially where directors misused government support schemes such as Bounce Back Loans.
Breach of fiduciary duty and negligence
- Breach of fiduciary duty: A breach of trust and loyalty. Occurs when a director acts unfairly, dishonestly, or puts their own interests ahead of the company’s
- Negligence: Occurs when a director fails to pay sufficient attention, makes avoidable mistakes, or does not meet the expected standards for someone in their position.
Consequences of failing your fiduciary duties
- Civil liability: The director may be ordered to repay losses, return profits, or restore misused assets.
- Director disqualification: Breach of fiduciary duty can lead to director disqualification proceedings, with bans lasting up to 15 years.
- Personal financial exposure: In insolvency situations, directors may face personal liability to creditors.
- Reputational harm: Allegations of disloyalty or misuse of funds can damage future business opportunities.
- Loss of office: Boards may remove directors found in breach to protect the company’s standing. Future opportunities may also be more challenging to secure.
Board of directors responsibilities
When a potential breach of fiduciary duty arises, the board of directors as a whole has a duty to act quickly, fairly, and transparently to protect the company’s interests.
The board’s key responsibilities include:
- Investigating promptly: As soon as concerns are raised, the board should commission a fair and independent review. This might involve internal audits or external legal advisers to assess what happened and whether any duties were breached.
- Preserving evidence: All relevant documents – such as board minutes, contracts, emails, and financial records – should be secured immediately. This prevents data loss and ensures the investigation is reliable.
- Managing conflicts: If one or more directors are implicated, they should step aside from related decisions until the matter is resolved. This helps preserve independence and credibility.
- Communicating appropriately: The board should agree on a clear communication strategy. Transparency is essential, but sensitive information should be handled carefully.
- Considering governance improvements: Even if no formal breach is proven, the investigation may highlight weaknesses in the company’s decision-making or oversight. Strengthening internal processes, training, or policies can help prevent future issues.
- Taking corrective action: If a breach is confirmed, the board may need to take disciplinary steps, seek recovery of losses, or refer the matter to authorities such as the Insolvency Service.
- Seeking legal advice: Independent legal guidance ensures that all actions comply with the Companies Act, directors’ duties, and the company’s constitution.
Addressing problems early protects the company’s reputation and reduces the risk of claims or regulatory scrutiny.
Breach of fiduciary duty claims
When a fiduciary duty is breached, the company (or sometimes a shareholder on its behalf) may bring a civil claim. On occasion, these claims may be tactical, for instance, during a funding round or power shift. Alternatively, allegations may occur when auditors, regulators, or the bank raise a serious issue.
A breach of fiduciary duty claim typically involves:
- Identifying the duty that was breached
- Proving the breach by showing that the director’s conduct fell below the required standard
- Establishing causation and linking the violation to a loss suffered by the company
- Quantifying damages by assessing the financial or reputational impact.
Claims may be brought by:
- The company itself, often following an internal investigation or a new board appointment
- Shareholders, through a derivative action
- Insolvency practitioners, such as liquidators or administrators, reviewing director conduct
- Regulators, where public interest is at stake.
Creditors and regulators may also trigger or influence investigations, even if they do not bring the claim directly.
For directors, even the threat of such a claim can be daunting. Legal advice from an experienced director dispute solicitor is essential to protect your position and guide your response.
Breach of fiduciary duty remedies
Once a breach is established, the question becomes how to repair the damage. The courts, and sometimes the company internally, can step in with a range of measures designed to recover losses and rebuild trust.
Common breach of fiduciary duty remedies include:
- Shareholder ratification: Where appropriate, shareholders can approve past actions, neutralising some claims.
- Mediation: Confidential discussions led by an independent mediator often achieve pragmatic outcomes
- Compensation or damages: The director may be ordered to repay losses and restore the company’s position.
- Insurer-supported settlements: Directors’ and Officers’ (D&O) insurers may fund a resolution without any admission of liability.
- Account of profits: The director may have to hand over any personal gain made through the breach.
- Rescission: Contracts entered into improperly can be cancelled and unwound.
- Injunctions: The court can stop a director from continuing harmful actions or conflicts of interest.
- Restitution of property: Assets wrongly taken or transferred can be recovered and returned to the company.
- Declaratory relief: The court may formally confirm that a breach of duty has occurred.
- Forfeiture of remuneration: A director may lose salary, bonuses, or benefits earned during the period of breach.
- Cost orders: The court may require the breaching party to pay legal costs.
If you’re facing allegations, early legal intervention can often resolve matters before they reach court, avoiding the costs and publicity of litigation.
Breach of fiduciary duty process
- Internal review: The board or an independent investigator looks into the facts.
- Pre-action letters: Solicitors exchange correspondence to set out each side’s position.
- Mediation or settlement: Both parties may try to resolve matters privately or with the help of a mediator.
- Court proceedings: If no agreement is reached, the case may go to court, where filings and hearings become public.
- Let solicitors handle external communication: Having one controlled channel of communication avoids mixed messages and prevents anything being said that could later be used against you.
- Acknowledge, but do not explain: Detailed explanations should come later, after legal advice, to avoid inconsistencies or statements that may be misinterpreted.
- Mark all lawyer correspondence: Mark your correspondence with “Privileged & Confidential – For Legal Advice”. This helps protect legal privilege, ensuring that your communications with solicitors remain confidential and can’t be disclosed in court or to third parties
- Digital messages are evidence: Remember that Slack, Teams, and WhatsApp messages can be disclosed as evidence. Avoid informal, emotional, or speculative comments about the case.
- Keep a clear timeline of events: Maintaining an organised record of key decisions, dates, and documents helps your legal team build a stronger, more consistent defence.
Breach of fiduciary duty limitation periods
Timing matters. Generally, breach of fiduciary claims must be brought within six years of the breach or the date the loss occurred. However, there are important exceptions depending on the nature of the breach of fiduciary claim.
Breach of fiduciary duty limitation periods:
- Fraud, concealment, or mistake: If the breach was hidden, involved fraud, or was based on a mistake, the six-year time limit doesn’t start straight away. Instead, the clock begins when the claimant first discovered, or could reasonably have discovered, what happened.
- Equitable remedies: Some cases, for example, when a claimant is asking the court to stop certain behaviour, don’t have a fixed time limit Instead, the court looks at what’s fair in the circumstances and decides whether it’s reasonable for the director to argue that too much time has passed. Not all equitable remedies are free from time limits. Some follow the usual six-year rule under the Limitation Act 1980.
- Insolvency claims: When a company goes into liquidation or administration, the liquidator or administrator can usually bring claims within a reasonable time after being appointed, even if the misconduct happened years earlier. Some specific actions, such as misfeasance (wrongful use of company funds) or wrongful trading, have their own time limits set out in the Insolvency Act 1986.
Given the complexity, directors should always seek specialist advice as soon as allegations arise. Delaying your response can narrow your options or weaken your defence.
How to respond to allegations of breach
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Stay calm and understand the context
Not every allegation involves actual misconduct. Many claims stem from shareholder disputes, investor tensions, or internal politics rather than genuine breaches of duty. Understanding what lies behind the allegation helps you respond proportionately and strategically. -
Recognise your right to defend yourself
Directors have the right to challenge allegations and a breach must be proven. In many cases, a director can show they acted reasonably, relied on professional advice, or made decisions in good faith for the company’s benefit. With the right legal support, it’s often possible to clarify matters early and avoid formal proceedings altogether. -
Take immediate protective steps
To protect your position and credibility as a director:- Seek legal advice immediately: Instruct solicitors experienced in fiduciary and director disputes.
- Preserve evidence: Keep board papers, emails, and financial records. Do not edit or delete anything.
- Be transparent: Declare any conflicts and step back from related decisions.
- Engage constructively: Provide factual responses and cooperate with internal reviews.
- Notify insurers: Directors’ and Officers’ (D&O) insurance may help cover defence costs.
- Manage communications: Keep all correspondence professional. Avoid informal or emotional messages that could be misinterpreted.
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Be mindful of insolvency implications
If the company is in financial difficulty, your conduct will likely be reviewed by liquidators, administrators, or the Insolvency Service. Early legal advice can help you manage this scrutiny and demonstrate that you acted responsibly.
How to avoid a breach of fiduciary duty
Preventing breaches is about culture as much as compliance. Directors can avoid problems by embedding good governance practices throughout the company.
Key steps to avoid breach of fiduciary duty include:
- Understanding your duties: Stay current with legal obligations under the Companies Act and general law.
- Documenting decision-making: Record advice received and reasons for board decisions.
- Disclosing conflicts early: Transparency protects both you and the business.
- Exercising independent judgement: Don’t simply follow shareholder or third-party pressure.
- Promoting ethical standards: Encourage honesty and accountability at all levels.
- Reviewing governance processes: Regular board training and external audits can help identify and address weak spots before they become issues.
FAQ’s on fiduciary duty
A breach of fiduciary duty occurs when someone in a position of trust – such as a company director – acts against the interests of the person or entity they owe that duty to.
In business, it usually means failing to act in the company’s best interests, being disloyal, or neglecting proper care and diligence.
Usually, a breach of fiduciary duty is not a crime. However, if the breach involves fraud, theft, or dishonesty, criminal charges may also follow.
No. A breach of fiduciary duty isn’t a tort. Torts, like negligence or defamation, deal with carelessness or harm caused to others.
A breach of fiduciary duty is different – it’s an equitable wrong, focused on breaking trust or loyalty owed to the company. Sometimes, the two overlap. For example, a director who acts carelessly and also puts personal interests first could face both negligence and fiduciary breach claims.
Shareholders can take legal action against a director for a breach of fiduciary duty by bringing a derivative claim on behalf of the company. The court must first grant permission for such an action.
Shareholders can take legal action against a director for a breach of fiduciary duty by applying to the court for permission to bring a derivative action. They can also raise issues internally through board meetings or shareholder resolutions.
If there is an alleged breach of fiduciary duty, the company itself, a shareholder, or an insolvency practitioner can issue a claim seeking damages, restitution, or other remedies.
To prove breach of fiduciary duty, evidence often includes financial records, correspondence, board minutes, and witness statements showing that the director acted against the company’s interests or gained an improper benefit.
The penalties for breach of fiduciary duty vary depending on the seriousness of the breach. They may include compensation, repayment of profits, director disqualification, and loss of remuneration.
Yes. Directors can be personally liable for a breach of fiduciary duty and be forced to repay losses or profits gained, even if the company itself suffered no direct financial harm.
Equitable remedies are decisions the court can make to put things right. Instead of just awarding compensation, the court can order what’s fair and reasonable in the circumstances.
In a breach of fiduciary duty case, equitable remedies can include things like injunctions to stop harmful behaviour, orders to hand over money gained through the breach, or rescission to cancel an improper contract.
Contact our fiduciary duty solicitors today
At Summit Law, we specialise in helping directors navigate complex fiduciary and governance issues. Whether you’re seeking proactive advice or facing a potential breach of fiduciary duty claim, our experienced solicitors can guide you with clarity and discretion.
Our specialist insolvency solicitors offer:
- Preventative advice: Practical guidance on fiduciary duties, board governance, and compliance.
- Defence and representation: Support during internal investigations, civil proceedings, and director disqualification claims.
- Crisis management: Strategic handling of legal matters to minimise the reputational and regulatory fallout.
- Insolvency support: Protecting directors during liquidator or administrator reviews.
For your free consultation, call us today on 020 7467 3980 or complete the online enquiry form and one of our expert insolvency solicitors will be in touch.
