Your Ex-Director has joined a Competitor Business – Should you be Worried?

ConfictofInterest Boat

What’s the risk to a company of taking on a director from another company? It is not a simple case of the director ending one role on Friday and starting another on Monday. When a director leaves a company, they cannot exploit information or opportunities which arose in their previous role. The Companies Act says so (s 170(2)) and a recent case showed the danger of falling foul of the requirement.

(Burnell v Trans-Tag Ltd [2021]). Here a director was accused of exploiting the knowledge gained whilst working for one company, when he joined another company. The important point (which concerned opportunities arising from an IP licencing agreement and ownership of the opportunity) was that the director only breached his duty after he left. The ruling found him to be liable for damages to the original company even though he had left it many months previously.

This is good news for businesses: the ruling gives additional legal protection beyond the scope of any employment protections that may exist, like restrictive covenants. Directors and their new employers should be wary of ensuring that maturing opportunities have not previously been seen the light of day in the director’s previous roles. The new employer is otherwise exposed to the risk of an injunction to stop them pursuing that opportunity with all the time and cost that is involved.

How can Haddletons help?

We have extensive experience of ensuring directors and companies understand their duties and roles, as well as ensuring that companies deploy the armoury of protections available to stop directors and employees taking opportunities to which they are not entitled, including intellectual property, data theft and information leaks.

Whether you are a company or a concerned  director contact us on 0333 023 1700 or info@haddletons.com to find out about how we can help you.

Jacques 2

Author: Jacques Haddleton | jacques.haddleton@haddletons.com

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