A breach of fiduciary duty: what can an organisation be liable for?

Any organisation, be it a charity, a company or a TOWN COUNCIL, has fiscal responsibilities and have fiduciary obligations. A fiduciary has duties to be loyal, altruistic and is disinterested in personal profits; whether monetary or otherwise. Fiduciaries must place the interests of their principals (either the company, the beneficiaries of a charity or the residents of a town council) over and above all other considerations.

There must be no conflict

A fiduciary must not place themselves in a position where their own interests may come into conflict with the interests of her principal. They can breach it even if they were acting in honesty. There is no need to enquire about the fiduciary’s state of mind (whether or not they know they are acting in a situation of conflict).

For example, a town council’s chairman must not hold appointments in any company, or organisation that would raise suspicion on how the finances are used.

There must be no unauthorised profits

Although a fiduciary may be remunerated, they are not allowed to retain unauthorised or “secret” profits. If they are guilty of this, a fiduciary will be stripped of any unauthorised profits made in breach. They could be either personally liable for this (meaning they pay from their pockets) or they could be held to account as a trustee and have the funds traced into any assets that they acquire in any country. If the assets that they acquire makes money, these incidental profits will also go to the principal.

How do we know if the transactions made by a fiduciary was fair?

If the fiduciary was responsible, he would have dealt with transactions fairly. They have to show proof it including:

  • Proof that they did not take advantage of their position
  • Disclose all relevant information to the principal/shareholders/constituents
  • Prices were fair

The only way that concerned parties would know if a fiduciary is in breach or not, is that the fiduciary opens his books for scrutiny and checking. Companies and Charities are obliged to do this. Parliament wants Town Councils to be obliged to this too.

Once breach of trust is established, the organisation can be held to account for equitable compensation. The compensation depends on the type of losses.

If the fiduciary made a poor investment decision, the principal can seek compensation for the money lost. If a secret commission had been profited, the profit is liable to go back to the principal.

The Charities Act and the Companies Act are designed to protect principals. It would be a curious thing why any party would want to reject legislation that would protect public concerns.

 

 

About the author

Tay Leong Tan

Tay Leong Tan is a collective of 3 writers. Tay, Leong and Tan. (Who were you expecting?!) We are enthusiastic about labour issues, economics and current affairs in particular.

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