Directors diverted Property Opportunity to their Own Company and breached Fiduciary Duties

Where directors encounter an opportunity in their role as a director or that they might and should implement for the benefit of the company they must exploit it for the benefit of the company and not seek to divert it for their own benefit. This rule applies equally where the shares of the company to which the opportunity is diverted are beneficially owned by the directors concerned.

This was the situation in Pennyfeathers Ltd –v- Pennyfeathers Property Company Limited (2013). In that case the directors were brought in to assist a company set up to use a land option held by 2 individuals. But they set up their own company Pennyfeathers Jersey Limited which proceeded to take a conditional contract in respect of the land and to enter options to acquire surrounding land.

The court lifted the corporate veil on Pennyfeathers Jersey Limited saying that its contracts where impressed with implied trusts in favour of Pennyfeathers Limited by virtue of the directors’ ownership and control of the Jersey Company and held that they and the directors were accountable to Pennyfeathers Ltd for their profit.

This position could only have been avoided if the relevant directors had made full disclosure to Pennyfeather’s Limited and got that company’s full approval by written resolution. In practice that could only have occurred had the 2 directors taken over Pennyfeathers Limited as well.

As usual this blog is posted out of general interest. It does not replace the need for proper legal advice in individual cases.

This entry was posted in Constructive Trusts, contract law, Fiduciary Duties, Options, Property Law, Property Litigation, Sale and Purchase on January 31, 2014. Edit