The recent decision in a case arising from the fall out of the financial crisis has provided a useful summary of the duties a director owes to the shareholders.
Sharp and others v Blank and others  EWHC 3220 (Ch) was a case investigating whether, and to what extent, the directors of Lloyds owed fiduciary duties to the shareholders of Lloyds in providing advice and recommendations to the shareholders in relation to the acquisition of HBOS.
Whilst the court confirmed that the directors owed a duty to provide sufficient information to enable the shareholders to make a decision, based on proper information and not to mislead or with-hold information, the court confirmed the historic position that generally directors owe duties to the company and not to the company’s shareholders. This is because a company is a separate entity and distinct from its members. There is also a practical consideration to this separation – if directors owed duties to the shareholders then the directors’ time could be taken up by spurious claims brought by minority shareholders and there may be the potential for a conflict of interest if the shareholders interest were to clash with the interest of the company.
There have been cases where courts have decided that directors owe shareholders a special duty – but in those cases there have always been exceptional circumstances often involving family companies and usually some element of with-holding of crucial information to the relevant shareholder.
This recent case provides a useful summary and confirmation for directors that they must act in the best interest of the company, and not the shareholders.
For further advice or assistance please contact Nina Wilson.