Regal (Hastings) Ltd v Gulliver [1942]
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Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 37 is a seminal case in UK company law, establishing crucial principles regarding directors and officers' duty of loyalty to a company and the prohibition against personal exploitation of corporate opportunities. The case centres on the rule that directors cannot take advantage of opportunities that belong to the corporation, a principle rooted in their fiduciary duty to act in the best interests of the company.
Regal (Hastings) Ltd owned a cinema in Hastings, Sussex, and sought to expand its business. To secure leases for two additional cinemas, a new subsidiary was formed. The landlords required personal guarantees, which the directors were unwilling to provide. Instead, they decided to increase the share capital to £5,000. Regal contributed £2,000, while each of the four directors, including Chairman Mr Gulliver, put in £500. To complete the amount, Mr Garten, the company solicitor, was asked to contribute the remaining £500. Subsequently, they sold the business, making a substantial profit. The beneficiaries argued that the directors' actions breached their fiduciary duty as they failed to obtain fully informed consent from the shareholders.
The House of Lords, overturning the decisions of the High Court and the Court of Appeal, held that the directors were obligated to account for their profits to the company. The key principle, as articulated by Lord Russell of Killowen, emphasised that directors who, by virtue of their fiduciary position, make a profit are liable to account for that profit, irrespective of considerations such as fraud, absence of bona fides, or whether the property would have otherwise benefited the company.
Lord Wright further emphasised that the directors' duty to refrain from acquiring corporate opportunities for themselves does not end simply because they genuinely believe the company cannot take advantage of those opportunities. The duty remains stringent and is not dependent on considerations like the director's intention or negligence.
This case solidifies the rule against directors exploiting corporate opportunities for personal gain. It underscores the importance of fiduciary duties and the duty of loyalty directors owe to the company, reinforcing the principle that profits made in breach of these duties must be accounted for to the company.
Regal (Hastings) Ltd owned a cinema in Hastings, Sussex, and sought to expand its business. To secure leases for two additional cinemas, a new subsidiary was formed. The landlords required personal guarantees, which the directors were unwilling to provide. Instead, they decided to increase the share capital to £5,000. Regal contributed £2,000, while each of the four directors, including Chairman Mr Gulliver, put in £500. To complete the amount, Mr Garten, the company solicitor, was asked to contribute the remaining £500. Subsequently, they sold the business, making a substantial profit. The beneficiaries argued that the directors' actions breached their fiduciary duty as they failed to obtain fully informed consent from the shareholders.
The House of Lords, overturning the decisions of the High Court and the Court of Appeal, held that the directors were obligated to account for their profits to the company. The key principle, as articulated by Lord Russell of Killowen, emphasised that directors who, by virtue of their fiduciary position, make a profit are liable to account for that profit, irrespective of considerations such as fraud, absence of bona fides, or whether the property would have otherwise benefited the company.
Lord Wright further emphasised that the directors' duty to refrain from acquiring corporate opportunities for themselves does not end simply because they genuinely believe the company cannot take advantage of those opportunities. The duty remains stringent and is not dependent on considerations like the director's intention or negligence.
This case solidifies the rule against directors exploiting corporate opportunities for personal gain. It underscores the importance of fiduciary duties and the duty of loyalty directors owe to the company, reinforcing the principle that profits made in breach of these duties must be accounted for to the company.
