A recent case concerning the Stobart Group concerning a dissenting company director. We consider the decision and the lessons that can be learned by other company directors in relation to their duties.
Stobart v Tinkler – background
Mr Tinkler was the former CEO of Stobart. Then, following a decision to step down, he became an executive director at the company. He became disgruntled with the senior management of the company and started openly campaigning for the company to replace its chairman, Iain Ferguson. As a result, the board resolved to dismiss Mr Tinkler as an employee and remove him as a director under a term of his service agreement.
At an AGM shortly afterwards, Mr Tinkler was elected back on to the board. The other directors re-elected to the Board used a power within the company’s articles to remove him the following day.
The Company commenced proceedings against Mr Tinkler. It sought a declaration that Mr Tinkler had been validly and lawfully dismissed as a director, and financial remedies for alleged breaches of duty and conspiracy. Mr Tinkler counterclaimed for his reinstatement to the Board and a setting aside of a purported transfer of shares. Mr Tinkler also sought a declaration that Mr Ferguson was not validly re-elected to the Board at the AGM.
High Court decision
HHJ Russen QC found that Mr Tinkler had breached his fiduciary and contractual duties. This was by:
- speaking to the Company’s significant shareholders and criticising the Board’s management and the Group’s business and agitating the removal of Mr Ferguson;
- improperly sharing confidential information about a potential deal with another director;
- writing a letter to the shareholders and encouraging them not to re-elect Mr Ferguson at the next AGM; and
- forwarding the communication to employees of the Company and seeking to undermine the workforce’s confidence in their management.
The judge found these all to be serious breaches of duty. He described them as “guerrilla tactics” designed to reassert Mr Tinkler’s control over Stobart.
Mr Tinkler sought permission to appeal the judgment. However, the Court refused as the appeal had no real prospect of success. Further, in light of the Court finding Mr Tinkler had acted in a way which was destabilising to the Company, the conclusion of the claim was not only entirely justifiable but inevitable.
This case reasserts the key considerations for all boards and directors when complying with their duties. In particular, it reaffirms that each director has a duty to exercise independent judgement (s.173 Companies Act 2006). HHJ Russen QC said that the duty “does not carry with it some kind of entitlement or licence for an individual director to go off and do his own thing, independently of the board, in relation to matters that fall within the sphere of management of the company’s business.”
Full text of the judgment can be found here.
So, what are the practical lessons to learn from this case in order to comply with your duties as a director?
1. Duty to the company
Firstly, remember that your duties are always to the Company. As a director, you have the duty to promote the success of the company for the members as a whole and to exercise reasonable skill, care and diligence, amongst various other duties. You may not act in any way that may cause the Company detriment.
2. Discuss management issues in the appropriate manner
Where you wish to discuss matters surrounding the Company’s management, ensure that you do so in the appropriate way i.e at a Board meeting. You should not discuss management matters with the shareholders. If necessary, raise them with the Board in the first instance and discuss in the presence of the rest of the Board, with their prior approval.
3. Think carefully about making your personal views known.
If the Board makes a decision that you do not agree with, you may make your own views known. As a director with a minority view, you are not in breach of duty or obliged to resign if you abstain from voting or defer to the majority view. However, you should raise your objection at the Board meeting and request that it is minuted accordingly. If however, you think that the majority view will be seriously detrimental to the Company, and you have been unsuccessful in opposing, then you should consider resigning. Particularly where there is a real prospect that you will be held personally liable and/or accountable to the Company and its creditors.
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