Directors beware: a usefuI reminder

(and warning) from the Court of

AppeaI
inShare
09 August 2011
The recent Court of AppeaI decision in Towers v Premier Waste
Management Limited (2011) is a stern warning of the dangers of
faiIing to recognise situations which can give rise to a breach of a
director's duties.
n particular the duty to avoid a conflict of interest between his/her own interests and those of the company.
Background
Mr Towers, a former director of Premier Waste Management Limited (the "company), acquired the use of
some dilapidated excavation equipment for his personal use by way of a free, undisclosed and unapproved
loan from one of the company's customers (the "Customer).
The Customer's business was the supply of plant and machinery. When the company found out about the
arrangement, it issued proceedings against Mr Towers. The High Court found in f avour of the company and Mr
Towers appealed to the Court of Appeal on the basis that he had not been placed in a position of conflict
between his own interests and those of the company as:
O the arrangement was a private, informal, ad hoc arrangement involving small amounts which were
negligible and de minimis;
O the Customer had received no favours from Mr Towers in relation to the arrangement; and
O Mr Towers had no direct dealings with the Customer (the arrangements were made through an
employee of the company who normally dealt with the Customer and who worked in a division
headed by Mr Towers).
The Court of Appeal rejected Mr Towers' arguments wholesale. t upheld the High Court decision that Mr
Towers had breached his duties as a director of the company and ordered Mr Towers to pay the company an
amount based on what it would have cost him to hire the equipment in the open market.
The court also refused to excuse Mr Towers under section 1157 Companies Act 2006 (which gives a court the
discretion to relieve an officer (or auditor) of a company for negligence, default, breach of duty or trust if it
appears to the court that that person acted honestly and reasonably in the circumstances and that they ought
fairly to be excused). Mr Towers had acted unreasonably in failing to make a disclosure of the hire
arrangements to his board. t was immaterial that the company had suffered no loss.
Directors' duties
The decision reminds directors of the importance of avoiding situations which may give rise to a breach of their
duties as directors and of disclosing such situations to the company when they arise. The case also highlights
the difficulty in relying on section 1157 Companies Act 2006 as a def ence to a breach of directors' duties.
Directors should always proceed with caution in situations which may give rise to a breach of their duties, no
matter how trivial or negligible they personally consider the matter to be. f they are unsure about any aspect
of their duties, they should consider seeking specialist legal advice.