Sharma v Sharma & Anor

A director ordinarily breaches fiduciary duty and section 175 of the Companies Act 2006 by personally exploiting an opportunity which arose through the directorship or which the director could and should exploit for the company. The fully informed consent of all shareholders prevents such conduct from constituting a breach.

Consent may arise through acquiescence. Silence suffices where shareholders know that consent is required or where the circumstances make it unconscionable to remain silent and object after the event. Shareholders must know the material facts, but need not understand their legal characterisation. Full disclosure does not require the director to anticipate and analyse every unlikely future scenario.

The sole director of a dental company acquired several dental practices personally or through her wholly owned company. The other shareholders alleged that the acquisitions breached her fiduciary duties and section 175 of the Companies Act 2006.

Simon J held in Sharma v Sharma [2012] EWHC 2529 (Fam) that the shareholders had consented at a family meeting to an arrangement under which the director could acquire some practices for the company and others for herself. The shareholders appealed. The central issue was whether their knowledge and acquiescence amounted to effective consent.

1. The appeal was dismissed unanimously. The shareholders had full knowledge of the material facts and consented to the director acquiring some dental practices for herself. Her acquisitions therefore involved no breach of fiduciary or statutory duty.
2. A director ordinarily breaches fiduciary duty, and section 175 of the Companies Act 2006, by personally exploiting an opportunity arising through the directorship or another opportunity which the director could and should exploit for the company. Fully informed shareholder consent authorises conduct which would otherwise breach that duty. The statutory duty was materially equivalent to the corresponding equitable duty for the purposes of this appeal.
3. Shareholder acquiescence may constitute consent. Silence does not ordinarily establish consent unless the shareholders know that consent is required or the circumstances make it unconscionable to remain silent and object later. Knowledge of the relevant facts is essential, but shareholders need not appreciate that the conduct would legally constitute a breach of duty.
4. Kesh expressly consented after the parties specifically discussed whether the director could acquire future practices personally. Sunny and Raj consented through silence. They normally deferred to Kesh's business decisions, would naturally have spoken if they disagreed, and accepted valuable shareholdings in the company. It would have been unconscionable for them to remain silent and object only after the acquisitions had occurred.
5. The disclosure was sufficient because the director made clear that she intended to acquire some practices for the company and others personally. Full disclosure did not require her to identify and analyse every unlikely future problem, such as possible competition between practices.
6. The Court of Appeal declined to disturb the trial judge's coherent findings of fact. The respondent's alternative arguments under section 1157 of the Companies Act 2006, and the questions concerning remedies for breach, did not arise.

1. Court of Appeal (Civil Division): In Sharma v Sharma & Anor [2013] EWCA Civ 1287, the court unanimously dismissed the shareholders' appeal and affirmed the finding that informed consent prevented a breach of duty.
2. High Court, Family Division: In Sharma v Sharma [2012] EWHC 2529 (Fam), Simon J determined preliminary issues in financial remedy proceedings. He held that the shareholders had consented to the director acquiring some dental practices personally and that she and her company owned the disputed practices beneficially.