When you breach fiduciary duty: two directors fined £100M

When you breach fiduciary duty: two directors fined £100m in long-running corporate collapse saga. 

When you breach fiduciary, you’ve failed the core task that corporate governance demands. This latest example from the UK shows just how bad things can get once you’ve let things slip below the legal standard. 

The news closes a long-running saga around the former British Home Stores (BHS), a UK-based department store chain specialising in home goods. 

The company entered administration eight years ago. Now, two former directors have been ordered to pay out over £100m to creditors that continue to chase losses following the store’s collapse.

• After nearly a century of trading, BHS ran into financial difficulties, causing store closures around 2015. 
• In April 2016, following failed restructuring efforts, the company entered administration.
• All 164 remaining stores closed, resulting in 11,000 job losses. 

After lengthy legal battles, two former BHS directors – Dominic Chappell and Lennart Henningson – have been found guilty of breaching their fiduciary duties to the company in its final months. 

The central point of the arguments against them was that they pushed for the BHS to continue trading rather than put it into administration earlier. In doing so, they acted in their own financial interests rather than the company’s. 

Indeed, Chappell was found to have spent millions in BHS funds on personal luxuries like cars and yachts – actions so apparent that the judge presiding over the case said there was “no real prospect of defending any of the claims against him”.

This is up for debate. Multiple factors could still impact the final amount – if any – that they will transfer to creditors. These include judgements on their capacity to pay and any directors’ insurance that could apply to settle the difference.

For directors, it’s significant for two reasons:

• It’s another example of how bad the legal fallout could be if you breach your fiduciary duty. 
• It signals that new, more powerful legal channels exist to target directors who commit such crimes. 

Fiduciary duty is the cornerstone of a director’s responsibility to the company they serve. The word itself implies that a director is not managing their own assets; they are managing the companies’ assets, which are often the property of a separate group of shareholders. Using this control for personal ends is a clear breach of fiduciary duty and can easily land you in hot water. 

This carries extra importance in modern governance, which continues to see boosted regulations, oversights, and penalties for wrongdoing from governments worldwide. The UK – where the BHS scandal took place – is no exception; new laws there now mean directors could face jail time if they are found to have facilitated money laundering. Even failing to employ checks against it is enough to be guilty – such is the level of scrutiny on the modern board member.

Not automatically. It depends on how you did it. Being negligent carries less chance of guilt than acting with intent. As such, breaching fiduciary duty can quickly become a crime if prosecutors prove you committed acts like embezzlement, forgery, or financial abuse. 

In the case of the BHS directors, the crime was “trading misfeasance”.

Essentially, it’s the crime described above: continuing to trade when it was obvious to educated directors that the company should enter administration. 

Legal experts regard it as an easier crime to prove than other similar misdemeanours, highlighting that the BHS directors – alongside the rest of the board – were told by advisers that the company was in the “insolvency zone”. However, they did not discuss this advice, or if they did, it was not documented; these are fundamental governance failures. 

The crime has attracted attention because of its future legal potential. One expert told the Guardian that the charge “opens up a whole new avenue for recovering assets from directors of insolvent companies, and trading misfeasance is an area of potential liability which company directors now need to be aware of.”

The BHS case is another example of personal liability in the face of corporate wrongdoing at the board level. It shows that, while corporate governance continues to be a rewarding career, the increasing oversight and responsibility must be taken seriously. 

It also raises the question of “trading misfeasance” as a new avenue through which regulators might try to prove wrongdoing. Considering its broader scope, it might be easier to prove against bad actors.