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Glossary

Fiduciary Duty

The legal obligation of directors, officers, and advisers to act in the best interests of their principals — shareholders, clients, or beneficiaries — requiring loyalty, care, and good faith in decision-making.

What Is Fiduciary Duty?

A fiduciary duty is a legal obligation to act in the best interests of another party, placing the principal’s interests above one’s own (Investopedia). In the M&A context, fiduciary duties are owed by a company’s directors and officers to its shareholders, and by professional advisers (investment banks, lawyers, accountants) to their clients.

Fiduciary duties are the legal framework that governs how M&A decisions are made, evaluated, and challenged. They determine what a board must do when it receives an acquisition proposal, how it must evaluate competing bids, and when it may reject or accept an offer.

Core Fiduciary Obligations

Duty of Care

Directors must make informed decisions by:

  • Gathering and reviewing all material information reasonably available
  • Seeking expert advice when appropriate (legal counsel, financial advisers, fairness opinions)
  • Deliberating carefully before approving a transaction
  • Asking probing questions and challenging management’s assumptions

Duty of Loyalty

Directors must act in the shareholders’ best interests by:

  • Avoiding conflicts of interest (or fully disclosing them)
  • Not self-dealing or extracting personal benefits from a transaction
  • Treating all shareholders fairly and equally
  • Prioritising shareholder value over personal, management, or board interests

Duty of Good Faith

Directors must act honestly and with proper purpose by:

  • Not deliberately ignoring material information
  • Not acting with the intent to violate the law or a known duty
  • Making decisions for legitimate corporate purposes

Fiduciary Duties in M&A Transactions

When the Company Is “For Sale”

When a board decides to sell the company, its fiduciary duty shifts to maximising shareholder value — often referred to as “Revlon duties” (from the US landmark case Revlon v. MacAndrews & Forbes). In this mode, the board must:

  • Conduct a reasonable process to identify and engage potential buyers
  • Consider all bona fide offers, including unsolicited bids
  • Not favour one bidder for reasons unrelated to shareholder value (e.g., management relationships)
  • Obtain a fairness opinion from an independent financial adviser

When Evaluating an Unsolicited Bid

If the company receives a hostile takeover attempt, the board must:

  • Evaluate the offer in good faith and with adequate information
  • Not implement defensive measures solely to entrench management
  • Justify any defensive actions (such as a poison pill) as proportionate and in shareholders’ interests
  • Consider whether the offer price is fair relative to the company’s standalone value

Board Conflicts

Special fiduciary issues arise when:

  • Management buyout — management is on both sides of the transaction, requiring an independent board committee and independent advisers
  • Controlling shareholder transaction — a majority shareholder seeks to acquire the minority, creating inherent conflicts
  • Adviser conflicts — the financial adviser has relationships with the buyer or competing business interests

The Business Judgment Rule

The business judgment rule is a legal presumption that protects directors from personal liability for corporate decisions, provided they acted:

  • In good faith
  • With the care of a reasonably prudent person
  • In the honest belief that the decision was in the company’s best interest

This presumption shifts the burden to challengers to demonstrate that the board breached its fiduciary duties. However, the protection is weakened or lost if directors have conflicts of interest, act in bad faith, or fail to become adequately informed.

Fiduciary Duties in Asia Pacific

Fiduciary duty frameworks across Asia Pacific vary in their scope and enforcement. In Australia, the Corporations Act imposes statutory duties of care, diligence, and good faith on directors, with the Takeovers Panel overseeing conduct during corporate control transactions. In Hong Kong, directors’ fiduciary duties are grounded in both common law and the Companies Ordinance, with the SFC enforcing standards in public company transactions. In Japan, directors’ duties are codified in the Companies Act but historically enforced less aggressively, though shareholder activism is increasing accountability. In Singapore, directors owe fiduciary duties under both common law and statute, with a well-developed body of case law governing M&A-related duties. AI-native platforms like Amafi help advisers ensure that M&A processes meet fiduciary standards by documenting deal processes, tracking bidder engagement, and supporting fair and transparent evaluations.