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Tim Sadka

Partner - Kent & Sussex

4th September 2019

Company Directors beware – Directors owe fiduciary duties to their company’s shareholders

Tim Sadka, Corporate & Commercial Partner, warns Company Directors that, while not often an issue, company directors do owe fiduciary duties to their shareholders, not just to the company they are an officer of.


This principle has been reaffirmed in a recent case, Vald Nielsen Holding A/S v Baldorino.[1] (VNLH Case). The implications where a breach arises can be material for the directors involved and for the company concerned.

In the VNLH Case, Jacobs J considered the circumstances in which directors owe fiduciary duties to its shareholders. The claim related to the sale of shares in one company (Z Company) to another (Newco) in accordance with a management buy-out led by Z Company’s directors.

The Claimants, who were the shareholders of Z Company, contended that the directors misled them into selling their shares at a substantial reduction in value to Newco. The Claimants stated that the directors made false representations regarding Z Company’s financial state and as such the shareholders were deceived into the sale.

Fiduciary duty

Jacobs J examined English, Australian and New Zealand case law and concluded that, while as a general rule directors do not owe fiduciary duties to its shareholders, this is subject to a caveat which revolves around the nature of the relationship and circumstances existing between directors and shareholders.
Jacobs J concluded that the mere fact that a director has knowledge of the company’s affairs does not of itself give rise to a peculiar circumstance, this is an inevitable feature of being a director.

From the case law, Jacobs J accepted that a director purchasing shares from a shareholder does not of and in itself create a fiduciary duty. The existence of such duty depends upon the relationship between the directors and the affected shareholders. For example, the case law authorities demonstrate that a fiduciary relationship is more likely to arise between a director and shareholders in an owner-managed SME company, especially where there is are family members and where it more easily argued that there is a special relationship.

Special circumstances between directors and shareholders

On the facts in the VNLH Case, Jacobs J held that no special circumstances were present between the directors and shareholders. As such, no fiduciary duties arose and it followed that the Claimants’ claim for breach of duty failed.

If the claim had been successful, the transaction being challenged may have been overturned and the directors would have faced personal financial claims for losses suffered by the complainant shareholders.

While the VNLH Case Claimants failed, directors can take guidance from the judgment that in some circumstances, where peculiar circumstances exist, director duties can extend to shareholders. Directors should be especially cautious when making decisions that impact shareholders. When approaching shareholders, directors should carefully manage their interactions, and ensure events arising are choreographed, to ensure no lines are overstepped to avoid breaches of fiduciary duties to shareholders.

Legal advice for company directors

As businesses increasingly look to online resources as an alternative to taking legal advice, this is an area where the devil is in the detail and interpretation of facts. It follows, and it is at least arguable, that there is a role for informed and experienced lawyers to guide best practice and to influence the actions of directors to protect them and the companies they serve.

If you require further information, please contact Tim Sadka at or call him on 0800 276 115; he will be pleased to be of service. Alternatively, please contact us at

[1] Vald Nielsen Holding A/S v Baldorino [2019] EWHC 1926 (Comm) (VNLH Case)

The information contained in this communication if for information purposes only and is not intended to constitute legal advice by the author and Rix & Kay Solicitors LLP. No reliance should be placed on the content and if contemplating acting in reliance on the content then, before doing so, legal advice should be sought.

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