Directors representing someone else must still put company first


Date: 25 June 2009

Limited company directors, appointed to represent an investor, or some other outsider, must still put the company’s interests above those of whoever appointed them if there is a conflict, the court of appeal has confirmed.

Every director owes statutory duties to their company, such as the duty to act in the way they consider, in good faith, most likely to promote the success of the company for the benefit of its members as a whole. However, sometimes particular shareholders have the right to nominate a director or directors to the board of a company. For example, in a joint venture company, each of the joint venturers often has a right to nominate ‘their’ directors’ to the board.Substantial outside investors in a company, such as venture capitalists, also often insist on the right to nominate a director to the board, as one of the conditions of investing. In these cases, the shareholders often think of the director they appoint as being there to represent their interests. In these situations, there can be a conflict between the director’s legal duties to the company, and the expectations of those appointing them that the director will look after their interests.

The court of appeal has recently confirmed that a director’s duties owed to their company are always paramount, and override the interests of the shareholder nominating them. In the particular case, Neath and Swansea rugby clubs had set up a joint venture company called Neath-Swansea Ospreys Limited (‘Ospreys’). Neath had nominated a director to its board. An owner of Neath rugby club alleged that the actions taken by the nominated director, while acting as a director of Osprey, breached his duties to his nominator, Neath. The court of appeal said that, when acting as a director of Osprey, the director’s legal duties were owed to Osprey, and he had to act accordingly. He owed no duty to the organisation that nominated him. So, if he believed a particular decision was in the best interests of Osprey, he had to support it, even if it was contrary to the interests of his nominator, Neath.

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