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What Is a Breach of Fiduciary Duty?

What Is a Breach of Fiduciary Duty?

A fiduciary duty will impose important legal obligations upon you. Find out what happens if you breach these obligations here.

8th May 2019

Are you in a fiduciary relationship with someone? Are you concerned about what the consequences are of breaching a fiduciary duty? Here is all you need to know about breaching fiduciary duty and its consequences.

What is a Fiduciary Duty?

Fiduciary duties arise out of a fiduciary relationship between an individual and another individual. A fiduciary is someone who has another’s ‘confidence’. This confidence is for the fiduciary to act in the other person’s, known as the beneficiary, best interests. Fiduciary duties impose obligations upon the fiduciary to not engaged in circumstances which prevent them acting in the beneficiary’s interests. A typical situation that creates a fiduciary duty is between between directors and their companies. Another common example is between an agent and their principal. While the obligations as a fiduciary depends on the relevant relationship, there are some basic obligations that fiduciaries have. Namely, to avoid conflicts of interest, not to make a profit out of the relationship, and not to act on their own benefit without the beneficiary’s consent.

What Amounts to a Breach of a Fiduciary Duty?

Generally, when a breach is when a fiduciary does not adhere to one of their fiduciary duties. A breach typically occurs when the fiduciary uses the fiduciary relationship as a basis of personal financial gain. Furthermore, it is possible to breach your fiduciary duty without a positive act. This means that you can be liable for a breach of duty, if negligent in the operation of your duties. Keep in mind, that informed consent to allow a ‘breach’ by the beneficiary, will mean the duty is not breached. Given the complexity of fiduciary obligations, it is important to get legal advice from a business lawyer to make sure you abide by your obligations as a fiduciary.  

What Are the Consequences of a Breach?

A breach of a fiduciary duty can create significant legal and financial consequences. Significant fines and possible prison sentences can result if a fiduciary breaches their obligations. Furthermore, a breach can open you to being sued by the beneficiary. In cases where it is found that company directors breach their duties, this can expose them to personal liability for company debts in cases of insolvency.

Conclusion

Being a fiduciary is a serious affair, so it is important you are aware of the effects of a breach of fiduciary duty. By remaining proactive, and understanding the scope of your duties, you can ensure you carry out your obligations as a fiduciary responsibly and ethically.

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Author
Lachlan Ward

Lachlan is an intern at Lawpath as part of the content team. He is currently studying a Juris Doctor at the University of Sydney. Lachlan has a keen interest in corporate law and commercial litigation.