Most cases which come before the courts in connection with the sale and purchase of a company are brought by buyers against sellers. However, a recent High Court case looked at the sale and purchase of a company from a different perspective – that of the sellers who contended they were misled into selling by the management team who were leading a management buy-out.


The three defendants were the executive management team (the Management Team) of a company called Updata Infrastructure (UK) Ltd (the Target). Backed by a private equity house, the Management Team launched a management buy-out. Following a bidding process, in which there was a competing potential buyer, the entire issued share capital of the Target was bought by a new company (Newco), substantially owned by the Management Team and the private equity house backing them. At the time of the bidding process, the majority shareholder in the Target had considered the final offer from the Management Team more attractive than the rival bid. However, the key individuals in the majority shareholder subsequently came to believe that, in the course of the 2009 sale negotiations, they had been misled by false representations made by the Management Team about the Target's financial position. The majority shareholder had received £5.244 million for its 60% share in 2009 but in the proceedings contended that the true value of this stake, at the time of the sale, was £22 million.

One of the claimant's grounds of claim was that the Management Team had owed fiduciary duties to the shareholders, that the Management Team were in breach of those duties and that the claimants should therefore be able to recover an account of profits from the Management Team. The Management Team, two of whom were directors, argued that no such duties existed.


The court noted that while the directors of a company owe fiduciary duties to the company itself, they do not, merely by virtue of their office of director, owe fiduciary duties to the shareholders of a company. However, directors can exceptionally in certain circumstances owe fiduciary duties to shareholders if there is a special relationship over and above the usual relationship between a director of a company and its shareholders. As regards the nature of any such special relationship, the court noted the following factors:

  • it must replicate the main features of well-established categories of fiduciary relationships.  (e.g. agency) which involve duties of trust, confidence and loyalty. Those duties, in general, attach to a person who undertakes, or who is treated as having assumed, responsibility to act on behalf of, or for the benefit of, another person; 
  • the mere fact that a director has superior knowledge of the company's affairs, or that their actions have the potential to affect the shareholders, does not give rise to the necessary special relationship between the directors and the shareholders. These are usual, indeed inevitable, features of the relationship between directors and shareholders of a company;
  • the mere fact that a director is purchasing shares from a shareholder is not in itself sufficient to create a fiduciary duty. As far as English law is concerned, even in a situation where a director is purchasing shares from a shareholder, the existence of a fiduciary duty depends upon the existence of special circumstances giving rise to a special relationship; and
  • the cases where a fiduciary relationship has been held to exist mostly concern small, closely held companies, often with a family or other personal relationship and where there is a particular transaction involving director and shareholder.

Applying these legal principles to the facts, the court found there were no special circumstances which replicated the features of established categories of fiduciary relationships. Accordingly, no fiduciary duties arose between the Management Team (including the individual who was not a director) and the company's shareholders. The claim based on breach of fiduciary duty therefore failed, although the claimant's separate claim based on deceit and fraudulent misrepresentation was successful.


This case confirms that members of a management team are, absent unusual circumstances, unlikely to owe any fiduciary duties to selling shareholders from whom they buy. However, members of a management buy-out team must nonetheless be vigilant in how they conduct themselves when mounting a bid. They must be careful that, as a result of becoming potential buyers of the company, they do not breach their duties to the company, whether as directors or as employees under their service contracts. Management should therefore always take legal advice at an early stage when proposing to mount a buy-out bid to help resolve these potential conflicts.

Vald Nielsen Holding A/S v. Baldorino [2019] EWHC 1926

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