The decision in Regal is quite annoying, given that the entire situation could have been avoided in a simple way. According to Lord Russell in Regal, the directors could have, had they wished, have “protected themselves by a resolution (either antecedent or subsequent) of the Regal share-holders in general meeting”. Given that these directors were the only shareholders, why doesn’t the court ‘pierce the veil’ to protect them?
The practical effect of this decision, to situations where executives have additional shareholders to whom they owe fiduciary duty, is that executives will work their way around the confusing case law, and lack of regulation, by exploiting existing corporate mechanisms like executive bonuses (ex. a retention bonus to the directors for staying with Regal a bit longer?) to funnel that money they spent back to them, with interest.
Ultimately, the fiduciary duty directors hold towards their corporation, and the influence of shareholder voting, should deter directors from putting forward personal capital in a transaction, particularly where they are not the sole shareholders. In this case, I am surprised the court did not find it inequitable to take their profits away, given the complete change in shareholders. I suppose directors will just have to be more cunning and thorough.
