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IAI Actuarial Core Principles · Business Management · Separate legal personality, directors' duties, shareholders and partnerships

Mr Iyer, a director of Sundaram Foods Ltd, learns of a lucrative opportunity to buy a warehouse that the company has been seeking. He buys it personally through a family trust without telling the board. The company later discovers this. What is the most likely legal consequence?

Mr Iyer may have to account to the company for his profit or hold the warehouse for it. A director must not divert a corporate opportunity to himself, and routing the purchase through a family trust does not avoid the fiduciary breach.

  1. ANothing, because the purchase was made through a trust and not by him directly
  2. BNothing, because the company had not signed any contract for the warehouse
  3. CMr Iyer may be required to account to the company for the profit made or hold the property for itCorrect
  4. DOnly the company's auditors can take action against him
  5. Mr Iyer is liable only to pay a fine and keeps the profit

Explanation

A director must not exploit for personal benefit an opportunity that belongs to the company. Using a trust does not remove the breach. The usual remedy is to account for the profit or hold the asset for the company.

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