Simply no competition for advice

UNDER the Companies Act 2006 a company director owes a number of duties to the company and its stakeholders. Unfortunately, many directors are not aware of, or pay little heed to, these duties.

However, the duties are real andt this was demonstrated in a recent High Court case which concerned the duties to:

Act in good faith to promote the success of the company for the benefit of its members as a whole.

Avoid conflicts of interest. A director of a recycling firm felt it was in financial trouble. He set up his own company, with a similar name, and diverted business to the new company. There appeared to be a clear conflict of interest.

Even though the original company became insolvent it sued for breach of these duties. The court found none of the diversion of business was to promote the success of the original company and it was done solely for the benefit of the new firm.

The original company was able to claim its costs and damages. Directors who act in such a way also run the risk of being disqualified from acting as a director.

So, what should the director have done? He could have resigned as a director before setting up the new company and in this way his statutory duty to the original firm would have ended.

He should have checked his contract as many contain restrictions on competing with an employer, even for some time after resignation.The safest route would have been to seek advice from a specialist company lawyer. This would have allowed him to explore options and consequences. It is much less costly to take advice before you act, rather than when you are being sued.

Clarke Willmott has a specialist corporate team experienced in dealing with issues affecting small and medium sized businesses.

John Irving, Partner, Corporate team, Clarke Willmott. Call 0345 209 1000 or email getintouch@

clarkewillmott.com