Courts clarify Directors’ obligation NOT to benefit from Company Opportunity

It is commonly understood that a Director cannot benefit from a company opportunity. This is a fundamental staple of a Director’s fiduciary obligations to his/her company, though the extent of this obligation is often underestimated as Directors are, save for certain circumstances, even restricted from opportunities that the company chooses not to pursue.

The High Court has recently provided further helpful guidance regarding the remedies available where a Director breaches his/her fiduciary obligation and takes advantage of an opportunity.

In the case of Global Energy Horizons Corporation v Gray [2015] EWHC 2232 (Ch), 28 July 2015, the Court found that the Defendant breached his fiduciary duty to the Claimant in relation to an opportunity to exploit certain technology, which the Defendant went on to pursue with third parties.

The Court ordered the Defendant to account to the company for the benefits arising from his breach of duty, which included shares and fees from the third party. The Judge clarified that the company has both a proprietary and a personal remedy against the Director who must account for either the value of the opportunity or the asset itself – in this case the value of the shares (or their traceable proceeds, if already sold). It is for the Defendant to establish that he does not have to account for the asset (e.g. because he has no interest in the relevant asset and there is no causal link between the asset and his breach of duty).

The choice of remedy is up to the company and advice should be taken at an early stage to ensure that all rights and obligations are understood and pro-actively maximised.

Howat Avraam Solicitors provide commercial, employment and contract dispute advice to companies and business owners. We have a pragmatic in-house approach to resolving issues before they arise by working alongside our clients, often on monthly retainers. We are commercial, practical and entrepreneurial in our approach to legal services. To discuss any commercial or legal matter on a no obligation basis, please contact Matthew Howat, Company and Contract Disputes Partner, on 020 7884 9700 or Matthew.Howat@hasolicitors.co.uk. Alternatively, visit our website at www.howatavraamsolicitors.co.uk.

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