Friday 28 May 2021

UK: England and Wales: resignation and the director's continuing duty to avoid conflicts of interest

Sitting as a Deputy Judge of the High Court, Mr Ashley Greenbank delivered judgment today in Burnell v Trans-Tag Ltd [2021] EWHC 1457 (Ch). The decision, while first instance, is nevertheless important because of the discussion it contains of section 170(2)(a) of the Companies Act 2006, which provides that a person ceasing to be a director continues to be subject to the duty in section 175 to avoid conflicts of interest as regards "the exploitation of any property, information or opportunity of which he became aware at a time when he was a director".

Deputy Judge Greenbank stated (at paras [411] and [412]):

... the extended duty imposed by s170(2)(a) is a continuing duty and ... it must therefore be possible for a breach of that continuing duty to be founded on acts which take place after a director has resigned his or her directorship. It follows that, following the introduction of the general duties by CA 2006, it cannot be an absolute requirement for a breach of the extended duty that a director's resignation must have been prompted or influenced by his or her wish to acquire a business opportunity of the company.

Such a conclusion is of course contrary to the reasoning in some of the cases which discuss the common law rules and equitable principles on which the general duty in s175 is based, in particular, that of Rix LJ in Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200 and Cockerill J in Recovery Partners GP Ltd v Rukhadze [2018] EWHC 2918 (Comm) ... However, the courts did not have to address in Foster Bryant or Recovery Partners the question of the interaction of the existing case law principles with the statutory code. My conclusion also, in theory, risks creating circumstances in which duties are extended beyond the scope of the duties imposed by common law rules and equitable principles on which the general duty is based and imposing liabilities for breach in cases where liability might not arise based on those principles. However, it is, in my view, an inevitable result of the codification.".

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