What are academy directors' legal duties?
And what to do when directors go rogue…
The recent case of Stobart Group Ltd v Tinkler: a salutary reminder to directors of multi-academy trusts of their duties under the Companies Act 2006.
The case concerned a disgruntled director who shared confidential financial and other information about the company and made approaches to key stakeholders without the board's knowledge or approval (referred to as "briefing against the board"), including taking steps to ensure his own re-election and attempted appointment as chair of directors.
The court was asked to look at a range of governance issues, including the exercise of the powers of a director for their proper purpose, acting in good faith in the company's best interest and exercising independent judgement.
Current Department of Education policy (in accordance with governance best practice) is for a clear separation between the members of a MAT and its directors, avoiding overlap and potential conflicts between the separate roles and responsibilities of members and directors. That allows for a similar scenario as appears in this case to arise; in particular, where members are not treated equally when it comes to information being disseminated from the board and personal relationships between members and directors. The issue can frequently be exacerbated when a board is comprised of individuals with other commitments and potential conflicting interests, whether as employees of the MAT, as parents, as nominees of the local authority, diocese or foundation, or simply with their own business or other personal interests within the local community.
Academy directors legal duties
Academy directors should at all time be mindful of their company law duties under sections 170 to 177 of the Companies Act 2006, which include:
- the duty to act within powers (i.e. in accordance with the company's articles of association);
- the duty to exercise independent judgment;
- the duty to promote the success of the company;
- the duty to exercise reasonable care, skill and diligence;
- the duty to avoid conflicts of interest;
- the duty not to accept benefits from third parties; and
- the duty to declare an interest in proposed transactions
With regards to the exercise of independent judgement, the case confirmed that this does not allow a director to simply "go off and do his own thing". A director may, and should (in fact it is essential that they) feel able to, raise a dissenting opinion. Having raised a dissenting opinion, however, a director must be careful of their responsibilities to the collective decision making body and should not make approaches to individual members or others to air their views, or dissatisfaction.
It is not the case that a dissenting director is obliged to resign. It is entirely appropriate that a dissenting director accepts that the collective decision of the majority of the board has been genuinely taken in the best interest of the company. Decisions of the board are generally taken as a majority recognizing that there is no need or expectation of unanimity.
The directors' duties as referred to above are due to the company as a whole and not to any particular member (or even a majority of members), for that oversteps the boundaries of the company's separate legal personality as distinct from its members. Promoting the interest of some members gives preference to those members distinct from all members and distinct from the interests of the company.
In this case the court held that:
- the dissenting director should not have aired his concerns to selected stakeholders without having first raised them with the board. Even if members had prompted the issue the director should have maintained the collective line instead of disclosing his personal position and views. "Briefing against the board" was in breach of the duty of loyalty; and
- divulging confidential and misleading information (to members and employees) was a breach of loyalty and the duty to exercise independent judgement.
This is not to say that a dissenting director cannot make their concerns known. If necessary this should be done in an open and transparent way, ideally led by the board as a whole, which treats all members equally and fairly and which thereby enables the members to reach a considered position, with the benefit of all relevant information, in accordance with their own duties to the company.
What can MATs do prevent rogue directors?
MATs can take steps to prevent "briefing against the board", such as putting in place a code of conduct setting out the relationships between directors, governors, members of the MAT, staff other stakeholders and the wider community. A code of conduct could also cover formal and informal communications and delegated functions, as well as provisions reminding directors of their obligation to act in the best interests of the MAT, rather than for any personal gain.
Chris Billington, head of the education team at Wrigleys comments: "To avoid the potential for issues such as those which came before the court in this case arising, MAT boards should aim to promote a culture of clear communication and appropriate channels for discussion amongst the board. In circumstances where it appears to the board that they have no alternative option but to remove a director who has breached their duties, the board should take care to ensure that any such removal is in accordance with internal policies, the MAT's articles of association and the applicable company law and that at all times the board is acting in what they genuinely consider to be in the best interests of the MAT."
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The information in this article is necessarily of a general nature. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors.