What to Do If a Director Breaches Fiduciary Duties

When a director breaches their fiduciary duties, the damage can extend far beyond a single bad decision.

These breaches often involve misuse of company opportunities, conflicts of interest, concealed transactions, unauthorised payments or decisions taken for personal gain rather than for the benefit of the company. In many cases, the real issue is not only the misconduct itself, but the wider breakdown in trust, governance and control that follows.

In South Africa, directors are subject to clear legal duties under the Companies Act. Where those duties are breached, the company and, in some cases, affected shareholders may have legal remedies available. The correct strategy, however, will depend on the nature of the breach, the company’s internal documents and the evidence available.

That is why early legal advice matters.

What Are Fiduciary Duties?

Directors are required to act in good faith and for a proper purpose, in the best interests of the company and with the degree of care, skill and diligence expected in law. The Companies Act sets out the standard of directors’ conduct in section 76 and provides for liability in section 77. In serious cases, a court may also declare a director delinquent under section 162.

In practical terms, fiduciary duties usually mean that a director must not:

• Put personal interests ahead of the company’s interests

• Divert corporate opportunities for personal benefit

• Use their position to gain an improper advantage

• Fail to disclose a conflict of interest

• Act for an ulterior or improper purpose

Not every poor decision amounts to a fiduciary breach. Sometimes the dispute turns on whether the director acted honestly, what information was available at the time and whether proper process was followed.

That distinction is critical.

Common Examples of Fiduciary Breaches

A breach of fiduciary duty may arise where a director:

• Channels company business to a competing entity

• Uses confidential company information for personal gain

• Causes the company to enter into a transaction that benefits the director or a related party without proper disclosure

• Approves payments or benefits that are not properly authorised

• Excludes fellow directors from decision-making in order to consolidate control

• Misuses company assets or business opportunities

These situations often overlap with shareholder disputes, deadlock, director exclusion and allegations of misappropriation of company funds.

Why These Cases Require Strategic Handling

It is tempting to treat a fiduciary breach as a straightforward legal claim. In practice, matters are often more complex.

Before taking action, it is usually necessary to assess:

• What the company’s MOI and shareholders’ agreement provide

• Whether the director disclosed any personal financial interest as required by law

• Whether the board or shareholders approved the conduct

• Whether urgent relief is needed to prevent ongoing harm

• Whether the issue should be pursued through company processes, litigation or both

A rushed or poorly framed response can entrench the dispute and reduce leverage.

Legal Remedies That May Be Available

The appropriate remedy depends on the facts, but possible options may include the following.

• Interdictory relief

If the breach is ongoing or there is a real risk of immediate harm, urgent court relief may be necessary.

This may be appropriate where a director is continuing to divert funds, implement a conflicted transaction or exercise powers in a way that threatens the company’s position.

Urgent applications are highly fact-sensitive and should be carefully prepared.

• Claims for damages or recovery

The Companies Act provides that directors may be liable for loss, damages or costs sustained by the company in certain circumstances. Whether a viable claim exists will depend on the specific conduct and the evidential record.

A recovery strategy may involve more than one cause of action and often requires a detailed review of resolutions, communications, financial records and authority structures.

• Removal of the director

Where the breach is serious, the company may need to consider removal of the director through the proper statutory or governance process.

This must be handled carefully. Procedural defects can create further disputes and expose the company to additional risk.

• Delinquency proceedings

In serious cases, the court may declare a director delinquent under section 162 of the Companies Act. This is a significant remedy and is generally reserved for misconduct of a serious nature.

Because of the seriousness of this relief, it should only be pursued after a careful legal assessment.

• Oppression or unfair prejudice remedies

Where the breach forms part of a broader pattern of abusive or prejudicial conduct, affected shareholders may in some cases have recourse to section 163 of the Companies Act. This is often relevant where the wrongdoing is tied to exclusion from management, abuse of control or misuse of company resources.

The Importance of Evidence

In fiduciary duty disputes, the decisive issue is often not suspicion but proof.

Relevant evidence may include:

• Board minutes and resolutions

• Emails and internal communications

• Financial records and bank statements

• Contracts with related parties

• Company policies and approval mandates

• The MOI and shareholders’ agreement

Even where the underlying concern is well founded, weak evidence can materially affect the available remedies and the timing of any intervention.

Why Early Action Matters

If a director is acting in breach of duty, delay can be costly.

By the time the issue is formally addressed, there may already have been:

• Loss of funds or business opportunities

• Damage to the company’s commercial position

• Entrenchment of the director’s control

• Destruction or manipulation of records

• Escalation into a wider shareholder dispute

Early legal intervention helps the company assess its rights, preserve evidence and decide on the most effective remedy before the problem deepens.

A Practical Warning

There is no one-size-fits-all response to a fiduciary breach.

In some matters, urgent court action is necessary. In others, a carefully managed governance process or negotiated outcome may better protect the company’s value. The right path depends on the seriousness of the conduct, the available evidence and the commercial realities of the business.

That is precisely why these matters should not be handled on instinct alone.

How We Can Help

At Barter McKellar, we advise companies, shareholders and directors in disputes involving:

• Breach of fiduciary duties

• Director misconduct

• Misappropriation of company funds

• Shareholder oppression and deadlock

• Urgent governance interventions

If you suspect that a director has breached their fiduciary duties, it is important to assess the legal position before taking action.

Contact Barter McKellar to evaluate your remedies and protect the company’s position.