Management buy-outs and directors' fiduciary duties

Abstract

Management Buy-Outs occur when the managers of a company buy the company from its owners, namely the shareholders. Where such a company is a listed public company, the transaction is known as "going private. 11 The critics allege that this type of buy-out leads to irreconcilable conflicts of interests, a breach of fiduciary duties and to insider trading by the directors. For this reason Management Buy-Outs should be prohibited or alternatively, regulated to such an extent as to make them virtually unworkable. It is submitted that these conflicts are not irreconcilable and that they are no different to the myriad of other conflicts which arise out of the promotion, incorporation and the operation of a company. Both statute and the common law effectively deal with most of the critics' apprehensions without necessarily prohibiting the transactions giving rise to them.