Few moments unsettle a director quite like hearing the words 'breach of duty.' It often lands without warning: an email from a shareholder, a pointed question in a board meeting, or a note from an investor’s lawyer asking for 'clarification.' Suddenly, the focus shifts from strategy and growth to scrutiny and self-protection.
The consequences for breach of duty can be serious. But many cases can be resolved through discussion, remedial action or shareholder ratification.
Our business dispute solicitors have helped numerous directors navigate a range of breach of duty claims, and the sooner you reach out for advice, the sooner we can devise a legal strategy that’s tailored to your specific situation.
In this guide we explain what fiduciary duties are, how to respond to a breach of duty allegation without inflaming matters, and explore routes to resolution that protect both you and the company.
Contents:
- Who can bring a breach of fiduciary duty claim against a director?
- What do directors’ duties mean under UK law?
- Financial stress and the shift in directors’ duties
- Is it governance failure or boardroom politics?
- How do you preserve evidence when a breach of duty is alleged?
- What should your initial response be to a breach of fiduciary duty claim?
- How do you manage conflicts of interest?
- How do you resolve a breach of duty claim?
- How Harper James helps directors facing breach of duty claims
Who can bring a breach of fiduciary duty claim against a director?
A director’s fiduciary duties is an umbrella term that describes a range of legal responsibilities that a director owes a company, and the phrase 'breach of duty' covers a wide range of possible allegations. Sometimes it’s a formal letter from the company itself, claiming you have acted outside your authority or that you have failed to exercise reasonable care. In other cases, it’s a derivative action from shareholders alleging you have caused loss to the company. Disputes between shareholders or tension between founders and new investors often trigger accusations that one party has acted in bad faith or ignored proper process.
Creditors and regulators also come into play when financial distress looms. A creditor who feels misled about solvency, or a regulator who suspects misconduct, may use the same language, 'breach of duty', even if their motivations differ. The important thing to remember is that an allegation doesn’t need to come with a claim form to be serious. An informal email suggesting 'concerns about governance' can carry as much legal and reputational weight as a formal notice. Early clarity on who is alleging what, and why, shapes every strategic decision that follows.
What do directors’ duties mean under UK law?
Every UK company director owes a series of duties set out in the Companies Act 2006: to act in good faith, to act within their powers under the company’s constitution, to promote the success of the company, to refuse benefits from third parties, to exercise reasonable care and skill, to exercise independent judgment, to declare any interest in a proposed transaction that the company intends to enter into, and to avoid conflicts of interest. On paper, that sounds straightforward. In reality, it’s judged against the messy backdrop of fast-moving commercial life.
When courts assess conduct, they do not look for perfection, they look for process. Was all relevant information examined? Were conflicts declared and recorded? Did you seek advice before taking a high-risk step? A director who can show board papers, documented reasoning and professional input is in a far stronger position than one relying on memory. This is why legal and governance discipline isn’t bureaucracy, it’s your insurance policy.
Context matters here. A founder who pushes hard for growth might believe they are acting in the company’s best interests, yet minority shareholders could interpret that same decision as self-interested or reckless. The legal test balances both subjective belief and objective reasonableness - what would a reasonable director have done with the same knowledge, skill and experience as you? Demonstrating that you considered different viewpoints, especially creditor and investor interests, goes a long way in showing you acted responsibly.
Financial stress and the shift in directors’ duties
One of the biggest misconceptions directors face is thinking their duties remain constant. They don’t. When a company enters financial difficulty, when cash flow tightens, loan covenants are breached, or HMRC arrears start building, the focus of duty subtly shifts. At that point, directors must start prioritising the interests of creditors, not just shareholders.
This change can happen faster than people realise. A business might still be trading and paying staff, but if the directors knew or ought to have known there was no reasonable prospect of avoiding insolvency, continuing to trade could later be seen as wrongful trading. That’s when personal exposure becomes very real.
In practice, the safest move is to take professional advice at the first signs of distress. Doing so demonstrates that you were alert to creditor interests and acting responsibly. Courts and insolvency practitioners alike look favourably on directors who sought help early and documented their reasoning. Leaving it too late rarely ends well.
Is it governance failure or boardroom politics?
Not every 'breach' allegation reflects real misconduct. In growing or investor-backed companies, it’s often a symptom of tension, founders versus investors, executives versus non-execs, or shifting control around a funding round. Understanding the motivation behind the allegation helps you respond proportionately.
If it’s a genuine concern, such as an internal review triggered by auditors or a governance committee, the right approach is cooperation and transparency through formal channels. But if it is a tactical move, used as leverage in a shareholder dispute or as cover for commercial friction, then a careful, lawyer-led communications strategy is needed.
Either way, you gain nothing by reacting emotionally. Avoid informal replies or defensive explanations. Allegations that start in private emails can quickly escalate into board minutes, insurer notifications and external correspondence. Treat every communication as if it could one day be read in court or disclosed to investors.
How do you preserve evidence when a breach of duty is alleged?
Once an allegation surfaces, your immediate priority is to preserve the factual record. Don’t tidy up files, delete emails, or attempt to 'clarify' old minutes. Even innocent edits can look like tampering later. Instead, secure all relevant material, board papers, emails, advisory notes, declarations of interest, insurance policies, in one place under legal supervision.
Where possible, route the process through your solicitor so that document reviews fall under legal advice privilege. That means your preparatory work can’t be used against you if matters escalate. The same rule does not apply if you or a colleague gather materials independently and circulate them internally, so control is key.
This isn’t just about litigation risk. Having a complete, well-organised record often allows lawyers to shut down claims early. Many breach allegations collapse when contemporaneous documents show the board considered the issue carefully and acted in good faith. Documentation, not memory, wins the argument.
What should your initial response be to a breach of fiduciary duty claim?
How you communicate during this stage often dictates how contained the issue remains. At the outset, there should be a single point of contact for all responses, usually through company lawyers. Initial replies should be brief, factual acknowledgements rather than explanations or apologies.
Inside the business, keep discussions on a strict need-to-know basis. It’s tempting to vent frustrations to colleagues or clarify your position informally, especially in smaller companies where everyone feels close to the action. Resist that urge. Internal messages, Slack threads and even WhatsApp chats (including relevant WhatsApp chats on a personal phone) can later be disclosed in proceedings. The safest approach is to assume every word could resurface.
Mark correspondence with lawyers as 'Privileged and Confidential – For Legal Advice' and store it separately. And remember, silence isn’t guilt, it’s professionalism. Keeping communications controlled allows your legal team to manage tone, timing and consistency, all of which become critical if the matter moves towards mediation or court.
How do you manage conflicts of interest?
You should step back from discussions where there’s a conflict of interest and allow a sub-committee or independent director to manage the review. The process needs to be clean, transparent and properly recorded in the minutes.
Minutes themselves deserve care. They should capture the facts, who attended, what was decided and why, without commentary or defensive language. Overly emotional records can later be misinterpreted. Independent advice for the company and for you personally may both be necessary; they serve different roles and shouldn’t be conflated.
Handled professionally, this stage often diffuses tension. A clear, fair internal process reassures investors and insurers alike that the company takes governance seriously, reducing appetite for formal claims.
How do you resolve a breach of duty claim?
Most breach of duty issues never reach a courtroom. But if they do, the consequences can be serious. From having to compensate the company for any losses to being disqualified as a director.
Generally, though, once emotions settle and facts are clarified, many can be resolved through discussion, remedial action or shareholder ratification. Sometimes a misunderstanding in the paperwork is enough to trigger a claim that later proves unfounded. Other times, a governance improvement plan or re-approval of an earlier decision satisfies all parties.
Where financial loss is alleged, insurers may support a negotiated settlement without any admission of liability. Mediation, conducted confidentially, can also bring disputes to a pragmatic close without publicity. The common thread in all successful resolutions is early legal input. The sooner lawyers are involved, the more options exist to correct, explain or de-escalate before positions harden.
Delay, by contrast, narrows the path. Once formal pre-action correspondence begins, timetables and disclosure obligations take over, and costs start to climb sharply.
If informal routes fail, the process typically moves through several stages: an internal investigation, pre-action letters exchanged between lawyers, potential mediation, and only then formal proceedings. That journey can take many months, sometimes more than a year, and becomes public once court filings are made.
Directors should be realistic about the strain this brings. Even when insured, litigation consumes management time, distracts leadership teams and can impact investor confidence. That’s why your strategy from day one should focus on controlling the narrative, protecting privilege and keeping the issue proportionate. It’s rarely about winning at all costs, it’s about reaching a commercial outcome that protects both personal and company interests.
How Harper James helps directors facing breach of duty claims
Our role in these situations is part legal defence, part strategic management. We help directors interpret the allegation, assess which duties are engaged, and understand the motivations behind it. We manage communication with insurers, ensure privilege is protected, and coordinate specialists across corporate, disputes and insolvency law so that every angle is covered.
Because we act for many scale-up and investor-backed businesses, we understand the board politics that often underpin these cases. We work discreetly, often in the background, to design the right tone and timing of responses, protect reputations and, where possible, resolve matters quietly before they reach public view.
