With the risk of numerous ramifications as a result a breach of fiduciary duty that may lead to serious sanctions and penalties, it’s important that you’re familiar with fiduciary duties before entering an agreement. If you have any questions about a breach of fiduciary duty, its responsibilities, or know of a breach of fiduciary responsibility, this Business Kitz blog will address your queries and concerns, or alternatively contact our sister company, Legal Kitz, for any legal advice.
What are fiduciary duties?
The relationship between a fiduciary and the principal on whose behalf the fiduciary acts is referred to as a fiduciary duty. Fiduciary duty refers to the legal obligation by a person to behave in the best interests, loyalty and confidentiality of a party. If one is in a fiduciary relationship, the person is both legally and ethically bound by his duty as a fiduciary.
Examples of fiduciary relationships
- Trustee and beneficiary
A single parent with young children may generate trust with a trustee who has the responsibility to ensure the children were to inherit their rightful assets if their parents were to die. In this situation, the parent will promote either a person or entity to be a trustee of the estate. That individual will then have a fiduciary responsibility to the children, who are the beneficiaries of the estate.
- Guardian and ward
A guardian and ward relationship entails an adult being pointed as a legal guardian to a minor child. In this situation, the guardian is the fiduciary and therefore has the responsibility to ensure that all the daily matters related to the child’s welfare are cared for and must have the child’s best interests. Responsibilities may include selecting the child’s school, arranging health care and covering all extra costs.
- Agent and principal
Any individual, company, partnership, or governmental organisation may be requested to act as an impartial agent on behalf of a principle. The relationship between an organisation’s executives and its shareholders is a typical illustration of an agent/principal relationship that entails a fiduciary duty. The shareholders anticipate that the executives will act in their best interests as owners and on their behalf by making thoughtful, responsible judgments.
What are the types of fiduciary duty breaches?
To be considered to have breached their fiduciary duty, directors and officers may have done any of the following:
- Failed to have a company’s best interest in mind when making a business decision
- Have prioritised a significant personal interest in the topic of business judgement over the interests of the company.
- Engaged in behaviour that is harmful to the interests of the company to benefit from or for someone else.
- Wilfully and dishonestly failed to use their authority to carry out their responsibilities in a way that is in the company’s best interest.
- Utilised their position to achieve an advantage for themselves or someone else, either directly or indirectly, and harm the organisation in the process.
- Gained an advantage, directly or indirectly, for themselves or someone else, by intentionally obtaining knowledge and utilising it dishonestly to the company’s damage.
- Failed to stop the business from conducting dishonest business whilst Beijing was insolvent.
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What is the penalty for a breach of fiduciary duty?
If there is a breach of fiduciary duty and it can be proven, the courts may order significant monetary compensation as well as disqualification from managing corporations in the future. If you suspect there is a breach of fiduciary duty, then you can apply for a declaration of contravention of a civil penalty provision that can be made by the Power of Australian Securities and Investment Commission (ASIC) to the appropriate court.
If you require assistance in matters regarding fiduciary duty, our sister company, Legal Kitz can assist with ensuring that your matter in court is as timely and cost-efficient as possible. Click here to book a FREE consultation with one of our highly experienced solicitors today, or contact them at email@example.com or by calling 1300 988 954.