Written by Jeremy Boyle Last Updated: 5 November, 2025If you’ve taken on the role of company director, you’ve accepted a position built on trust. Investors, shareholders, employees, and the wider public all expect you to put the company’s best interests before your own.
Failing to uphold your fiduciary duties can have severe consequences, affecting your reputation, career, and financial position.
In this guide, we explain what fiduciary duties are and why they matter. We also explore what happens if these obligations are breached, and highlight the remedies available when things go wrong.
- What are fiduciary duties?
- Key fiduciary duties of directors
- Breaches of fiduciary duty
- Consequences of failing your fiduciary duties
- How is a breach of fiduciary duty investigated?
- What to do if you are facing allegations of a breach
- Remedies for breach of fiduciary duty
- Fiduciary duty - FAQs
- Contact our fiduciary duty solicitors today
What are fiduciary duties?
- Putting the company’s interests ahead of your own
- Avoiding conflicts between personal gain and company responsibilities
- Acting with honesty, fairness, and loyalty
- Making decisions aimed at promoting long-term success.
Key fiduciary duties of directors
Your fiduciary duties are a framework for sound judgement rather than a checklist. The same decision can engage several obligations simultaneously. For example, approving a related-party contract requires you to act within your powers, exercise independent judgment, avoid conflicts, and promote the company’s success.
When in doubt, take a measured approach, disclose information early, and document the reasoning behind your decision.
Your key fiduciary duties as a director include:
Duty to act within powers
Directors must act in line with the company’s constitution – typically its articles of association – and only exercise powers for their intended purpose. Using company powers for an improper or personal purpose can amount to a breach of fiduciary duty.
Duty to promote the success of the company
Perhaps the most important fiduciary duty as a director is the duty under section 172 of the Companies Act. A director must act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.
This requires balancing short-term performance with long-term sustainability and considering:
- The interests of employees
- Relationships with suppliers and customers
- The company’s impact on the community and environment
- The need to maintain high business standards
- The company’s reputation.
When a company is insolvent, or an insolvent liquidation/administration is probable, directors must take proper account of the interests of creditors.
Duty to exercise independent judgment
Directors cannot simply act as mouthpieces for shareholders or third parties. They are expected to make decisions independently, based on their own judgment, while still considering professional advice where appropriate.
Duty to exercise reasonable care, skill, and diligence
Directors are judged against both:
- The objective standard: What a reasonably diligent person would be expected to do in that role.
- The subjective standard: The actual knowledge, skill, and experience the director possesses.
This means experienced professionals are held to a higher standard than inexperienced directors, but ignorance is no defence.
Duty to avoid conflicts of interest
Directors must not place themselves in situations where personal interests conflict (or could conflict) with the interests of the company. This includes:
- Taking business opportunities that properly belong to the company
- Holding positions in competing companies
- Allowing personal relationships to affect decision-making.
Duty not to accept benefits from third parties
Directors should not accept gifts, hospitality, or other benefits from third parties if they could compromise, or appear to compromise, their independence.
Duty to declare interests in transactions
If a director is interested in a transaction the company is proposing – for example, if they have a financial interest in a supplier – they must declare that interest to the board. If the interest relates to an existing transaction, a declaration is also required. Transparency is central to avoiding allegations of breach.
Breaches of fiduciary duty
A breach of fiduciary duty occurs when a director fails to act in line with their obligations. Breaches can take many forms, including:
- Diverting business opportunities for personal gain
- Using confidential information to benefit a competitor
- Entering into transactions without declaring a personal interest
- Failing to exercise independent judgment by blindly following shareholder instructions
- Acting outside the company’s constitution
- Misusing government-backed loans, such as Bounce Back Loans, for personal purposes or ineligible business expenses
- Misusing company assets.
Some breaches are the result of deliberate misconduct, while others are the result of negligence or poor oversight. But in either case, the law treats them seriously.
Consequences of failing your fiduciary duties
Failing to uphold fiduciary duties has wide-ranging consequences for directors. The risks are both personal and professional and may include:
- Civil liability: You may be required to compensate the company for losses caused by your actions, repay profits you personally gained, or return misused assets. Courts can also unwind contracts entered into improperly or issue injunctions to stop further breaches.
- Director disqualification: Breach of fiduciary duty is a common ground for: director disqualification proceedings. A ban can last between two and 15 years, and prevent you from acting as a director or being involved in company management.
- Personal financial exposure: If the company becomes insolvent, you may face personal liability to creditors. Shareholders and investors can also bring claims directly if they believe their interests have been harmed.
- Career impact: Disqualification, or even an unresolved allegation, can damage your standing with investors, business partners, and regulators. Future board opportunities may be far harder to secure.
- Reputational harm: Allegations of breaching trust often attract scrutiny from stakeholders and the wider business community. Even without a formal finding, your professional reputation may suffer, which can limit your ability to raise finance or lead other ventures.
In recent years, the Insolvency Service has taken strong action against directors who misused Bounce Back Loans. Overstating turnover to obtain a larger loan, taking multiple loans, or diverting funds for personal spending have all led to disqualification, repayment orders, and in some cases criminal investigation.
Because the consequences can be serious, appointing expert legal advisers at the earliest stage is crucial. Early advice from director disqualification solicitors can minimise the impact, protect your position, and in some cases prevent matters escalating into litigation or disqualification proceedings.
How is a breach of fiduciary duty investigated?
Allegations surface in different ways. Sometimes they arise quietly inside the business; other times they land with a claim form. Typical triggers include:
- Board concerns or whistleblowing: Colleagues, employees, or advisors may raise concerns about conflicts, unusual payments, or side deals.
- Audit and finance flags: External auditors, HMRC investigations, an audit committee, or the bank may raise queries about transactions or disclosures.
- Shareholder pressure: Minority shareholders may make unfair prejudice complaints or threaten a derivative claim on the company’s behalf.
- Insolvency events: During liquidation or administration, the officeholder reviews the director’s conduct and may bring misfeasance claims.
- Regulatory referrals: Matters are often reported to the Insolvency Service and (in regulated sectors) the FCA or other authorities.
Once raised, the process typically follows one or more of the following routes:
Internal fact-finding
Concerns about a potential breach are often examined inside the business first.
- The chair or an independent non-executive may commission an internal investigation, usually with the support of external solicitors to preserve independence
- Evidence is secured quickly (e.g. emails, chat logs, board papers, contracts, and even device images) to ensure that nothing is lost
- The director under scrutiny will typically be asked to disclose any interests and, if necessary, step back from relevant decisions
- Witness interviews are then conducted, and the findings are compiled into a confidential report for the board.
If concerns are substantiated, the likely outcomes include removal from certain decision-making, a request to resign, or recommendations for governance changes. In some cases, the findings may be submitted to regulators or used in subsequent civil proceedings.
Civil claims
If the company itself (or a shareholder) believes there has been a breach, the process typically begins with a formal letter of claim. This letter should outline the allegations and the loss alleged to have been incurred.
- Pre-action disclosure requests and attempts at settlement will follow. If no resolution is reached, proceedings may be issued in the High Court
- At that stage, the court has the power to order the disclosure of documents, call witnesses, and rely on expert evidence, such as forensic accounting analysis.
When allegations move into the courts, the consequences can be severe. Directors may be ordered to compensate the company for losses, return profits made through the breach, or face injunctions preventing similar conduct in future. Proceedings in the High Court are public, so reputational damage is often significant.
Insolvency-led investigations
When a company enters liquidation or administration, the conduct of directors is automatically reviewed.
- Officeholders such as liquidators or administrators examine transactions, dividends, director loans, and other dealings to assess whether there has been misfeasance, a transaction at an undervalue, or preference payments.
- If problems are uncovered, claims may be pursued against directors.
- The evidence is also routinely shared with the Insolvency Service, which may then begin director disqualification proceedings.
A Section 16 letter is often the next step, setting out the case for director disqualification, with a potential ban of up to 15 years.
What to do if you are facing allegations of a breach
- Secure advice early: Speak to specialist solicitors who understand fiduciary disputes and director disqualification. Coordinate with your accountant and PR if needed.
- Preserve evidence: Put a hold on deletion policies. Keep board packs, emails, messages, and notebooks. Do not edit documents or “tidy up” files.
- Disclose conflicts: Make full, prompt declarations of any personal interests. Recuse yourself from related decisions until the issue is resolved.
- Engage, don’t stonewall: Provide measured, accurate information. Ask for clear particulars of the allegations and a reasonable amount of time to respond.
- Control communications: Keep responses factual and channelled through your legal team. Avoid casual or emotional messages that could be misread.
- Document your judgment: Record the factors you considered, advice you received, and why the decision was in the company’s interests.
- Think about insurance: Notify D&O insurers immediately and follow policy conditions.
- Protect the business: If appropriate, support an independent internal review. Steps that improve governance can mitigate criticism.
- Be aware of related risks: Allegations can bleed into banking covenants, investor relations, or regulatory notifications. Manage these proactively.
Remedies for breach of fiduciary duty
When a fiduciary duty is breached, there are several ways to address the situation. Sometimes the matter is dealt with internally, through negotiation, board action, or settlement with shareholders. In more serious cases or where an agreement cannot be reached, the courts may intervene.
The main remedies include:
- Declaratory relief: A formal statement (from the board or, if escalated, the court) confirming that a breach occurred. This can help clarify rights and responsibilities and guide future conduct.
- Compensation or damages: The director may be required to repay the company for any losses caused. This can be agreed internally or ordered by a court if disputed.
- Account of profits: Where the director has personally benefited from the breach, they may be required to return those profits to the company, even if the company could not have earned them itself.
- Injunctions: Used by the courts, injunctions stop a director from continuing harmful actions or exploiting a conflict of interest.
- Rescission: Contracts entered into improperly may be set aside, either by agreement between the parties or, if necessary, by court order.
- Restitution of property: Assets wrongly taken or diverted may be returned. In complex cases, a constructive trust may be imposed, allowing the company to regain control over the asset.
- Forfeiture of remuneration: In serious cases, a director may be required to forfeit salary, bonuses, or benefits earned while in breach.
- Cost orders: If the case is litigated and the company succeeds, the director may be ordered to pay the other party’s legal costs.
Whether resolved internally or in court, the goal is always the same: to protect the company, undo unfair advantage, and restore confidence among shareholders and investors.
Fiduciary duty - FAQs
A fiduciary duty arises whenever one person agrees to act on behalf of another in circumstances that give rise to trust and confidence. For directors, this is automatic on appointment.
Yes. While fiduciary duties are owed primarily to the company as a legal entity, protecting shareholder interests is a central part of promoting the company’s success.
Typically, breach of fiduciary duty gives rise to civil, rather than criminal, liability. However, if the breach involves dishonesty, fraud, or theft, criminal offences may also apply.
Most employees do not owe fiduciary duties, but they do owe duties of fidelity and good faith. Senior employees, such as company officers, may be held to fiduciary standards.
Generally, shareholders do not owe fiduciary duties to the company or to each other. The exception is in small companies with partnership-like structures, where duties of good faith may apply.
Evidence may include financial records, correspondence, witness testimony, and proof that the director acted in a manner that conflicted with the company’s best interests.
Yes. Solicitors and barristers must act in their clients’ best interests, maintain confidentiality, and avoid conflicts of interest.
Contact our fiduciary duty solicitors today
At Summit Law, we advise directors on their rights and responsibilities. Whether you are seeking clarity about your fiduciary duties or facing allegations of breach, we can guide you through the risks and protect your position.
Our director defence lawyers offer:
- Proactive compliance advice: Clear, practical guidance on conflicts, related-party transactions, board processes, and documenting decisions.
- Shareholder dispute resolution: Strategic handling of investor concerns, unfair prejudice claims, and derivative actions.
- Robust defence: Challenging allegations of unfit conduct and building a strong case on your behalf.
- Insolvency-related risk management: Support and representation during liquidator or administrator investigations.
For your free consultation, call us on 020 7467 3980 or use our online enquiry form, and our director defence solicitors will call you back.
