This recent High Court case provides helpful clarification on whether directors preparing to leave a company and set up in competition entitled the former company to an account for profits.
The Court held that describing the acts as ‘preparation’ for leaving did not mean the director’s duties were not breached, due to the requirement for good faith.
On the facts, the former company would not be entitled to profits, as it was not shown these were directly related to the breach of duty. Further, whilst the directors had gone to the US whilst still directors, they had still done work and earned their salaries.
Lessons? As a business you should make sure you understand which preparatory steps a director may take before setting out in competition. Well drafted employment or service contracts are also an opportunity to prescribe more specific steps you want to prohibit.
The Case? Gamatronic (UK) Ltd & Anor v Hamilton & Anor [2016] EWHC 2225
The employees had continued to carry out their duties while still employed by the company (and were responsible for a major part of its turnover), had taken no significant time off work until the USA trip, and had carried out their activities outside working hours. They had therefore earned their salaries.
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