The law would impede the development of modern business practice if it continued to insist that directors were trustees by any other name. Trustees are usually required to act unanimously, whereas a simple majority decision of a board of directors will suffice. Again, trustees must exercise a high degree of restraint and conservatism in their investment judgments, complying with what the Trustee Act 2000 allows, whereas directors will be expected to display entrepreneurial flair and accept commercial risks to satisfy shareholders that a sufficient return is being produced on capital. It is generally upon trust principles that directors are made accountable for their handling of the company’s property and, like trust property, assets wrongfully disposed of by them may be traced into the hands of third parties who have knowingly received it1. However, individual directors, unlike individual trustees, do not normally receive property directly into their hands, and their control over company assets arises from the delegation under the articles of association which the shareholders have willingly conferred upon them, not from any strict liabilities imposed by the trust instrument or beneficiaries under disability. In any event, the idea of “fiduciary obligation” as applied to directors has required redefinition.

In British and West Building Society v Mathew2 a fiduciary was characterised as a person who undertakes to act for another in circumstances that give rise to a relation of trust and confidence. This is altogether a more flexible approach than previously, because it fixes directors with the notion of accountable stewardship with respect to a company’s property without imposing the formal duties of a trustee. At the same time it allows a trust based remedy to be applied if the directors are found to have breached the particular fiduciary duties that apply to them by virtue of their own office eg loyalty and the duty to act bona fide in the interests of the company. This enables greater loss recovery from the directors concerned than if a common law damages claim is brought against them3. Reference to directors as “trustees” needs to be understood in this more limited sense4. Directors are constructive trustees of misapplied assets and must account strictly for losses which the company suffers.

In Re Duckwari Plc (No 2)5—
The company acquired a property asset in circumstances where one of its directors was in breach of the fiduciary obligations (expressed in statutory form as CA (1985, s 320 now CA 2006, s 190) to obtain shareholders’ consent for the transaction in which he was an interested party. The property subsequently fell in value while in the company’s ownership.
Held: the director was personally accountable for the loss, pound for pound, as a fiduciary was obliged to restore assets, or their equivalent value, as if trust funds had been misapplied.

The same principle applies if the asset increases in value.

By imposing a person-to-person fiduciary responsibility on a corporate officer it becomes possible to follow assets into the hands of others who are “fixed” with the breach of trust he is treated as having committed. The issue here is the degree of awareness of the breach that is required to make the third party a constructive trustee. Liability with the benefit of hindsight is a wonderful thing, but a workable distinction has to be drawn between persons who dishonestly receive assets knowing them to be derived from wrongdoing and those who deal with directors in good faith and are not put on enquiry by any suspicious circumstances7. More recently, courts have moved away from the “knowing receipt” test to assess simply whether it is unethical or unconscionable for the third party, in all the circumstances including the business context, to be allowed to retain, at the company’s expense, what has become vested in him: BCCI (Overseas) Ltd v Akindele

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