Functional cookies help perform certain functions, such as sharing website content on social media platforms, collecting comments, and other third-party functions. Although this is a decision of the House of Lords and is now considered one of the seminal cases concerning the duties of directors, curiously, the decision was not mentioned in official legal reports until almost 26 years after the decision. In the meantime, it has only been reported in the All England Law Reports. We use cookies to improve your browsing experience, deliver personalized ads or content, and analyze our traffic. By clicking on “Accept all”, you agree to the use of cookies. Were the directors of Regal Ltd responsible for the sale of their shares? Corporate directors are trustees and are therefore also required to recognise profits made in the performance of their duties. The no-profit rule is so important that it doesn`t matter whether they acted in good faith or whether the company profited from it. Therefore, they were accountable to the company. However, the former directors were able to get their £3,000 back. We also use third-party cookies to help us analyze how you use this website, remember your preferences, and deliver content and advertisements that are of interest to you. These cookies are only stored in your browser with your prior consent.
Advertising cookies are used to show visitors personalized advertisements based on previously visited pages and to analyze the effectiveness of advertising campaigns. First and 2.1 class answers to learn structuring problems and essay questions. Whether the directors have breached their fiduciary duties to the applicant and should retain their profits. Regal owned a cinema in Hastings. They rented two more through a new subsidiary to make the entire property an attractive sales package. However, the owner initially wanted them to give personal guarantees. They didn`t want that. Instead, the owner said he could increase the share capital to £5,000. Regal himself invested £2,000 but could not afford more (although he could have secured a loan). Four directors invested £500 each, the chairman, Mr Gulliver, got outside underwriters to deposit £500 and the board asked the company`s lawyer, Mr Garten, to deposit the remaining £500. They sold the company and made a profit of almost £3 per share.
But then the beneficiaries filed a lawsuit against the directors, claiming the profits violated their fiduciary duty to the company. They had not received fully informed shareholder approval. “The rule of equity, which insists that those who make a profit using a fiduciary position are responsible for that profit, does not depend in any way on fraud or lack of good faith; or questions or considerations as to whether the property would otherwise have been or should have gone to the plaintiff, or whether the plaintiff took a risk or acted as he did in favour of the plaintiff, or whether the plaintiff was actually harmed or favoured by his or her act. Liability arises from the mere fact that a profit has been made in these circumstances. Performance cookies are used to understand and analyze key website performance indicators, which helps provide visitors with a better user experience. Don`t like reading much? Learn with our videos! Necessary cookies are necessary to enable the basic functionality of this website, such as secure login or adjusting your consent settings. These cookies do not store any personal data. Regal (Hastings) Ltd v Gulliver [1942] UKHL 1, is a matter of principle in UK company law in relation to the rule prohibiting directors and officers from personally exploiting a business opportunity in breach of their duty of loyalty to the company. The court held that a director is in breach of duty if he or she takes advantage of an opportunity that would otherwise be of interest to the corporation but could not take advantage of. However, the infringement could have been remedied by ratification by the shareholders, which the parties did not do. Summary of everything you need to know from textbooks, court decisions and journal articles in a few pages. Save time by focusing on the essentials. Company law — Powers and duties of directors — Subsidiary — Cinemas — Shares — Fiduciary duty to the corporation — Directors` liability “The Court of Appeal held that the respondents, as directors, were entitled to acquire the shares themselves in the absence of dishonest intent or negligence or breach of a specific obligation to acquire the shares on the part of the appellant.
Having made a bona fide decision that the appellant could not raise the funds necessary to raise the shares, her obligation not to acquire those shares for herself ceased to exist. With the greatest respect, I feel compelled to consider such a dead conclusion in the teeth of the wise and salutary rule so strictly enforced in the authorities. It is presumed that it would be pure quixotic folly on the part of the four respondents to miss such an opportunity if the appellant could not avail himself of it; Lord King, L.C., was confronted with exactly this position when he accepted that the person in a fiduciary position could be the only person in the world who could not take advantage of this opportunity. Read our corporate law cases and notices to learn more! The House of Lords quashed the High Court and the Court of Appeal, finding that the defendants had made their profits “by virtue of being directors of Regal and in the exercise of that function”. They therefore had to account for their profits to the company. The guiding principle was briefly stated by Lord Russell of Killowen: you can enable or disable some or all of these cookies, but disabling some of them may affect your browsing experience.