Director's Duties after Leaving: Can a director remain liable?

Directors of companies in England and Wales owe a number of duties to their company under the Companies Act 2006, such as to promote the success of the company, to act within their powers and to avoid conflicts of interest. These duties generally apply to a director from the date that they are appointed as a director to the date they cease to be a director. However, simply ceasing to be a director does not remove all duties that a director may owe to their former company. As a carve out to the ordinary rule, directors will remain subject to the following duties after they cease to be a director:

• The duty to avoid conflicts of interest in relation to the exploitation of any property, information or opportunity of which they became aware of when they were a director of the company; and
• The duty to not accept benefits from third parties in relation to anything done or omitted to be done before the person ceased to be a director.

When might a former director still be conflicted?

A former director may risk breaching the duty to avoid conflicts of interest where, for example, the former director pursues business opportunities arising from confidential information which they had become aware of as a director of the company.

In the recent case of Burnell v Trans-Tag Ltd [2021], a former director (Mr Burnell) was held to be liable for his actions committed after resigning as a director of the company. In this case, after resigning from Trans-Tag Ltd (TTL), Mr Burnell invested in a company which granted an intellectual property licence to TTL which was key to TTL’s business. Mr Burnell’s licensor company then proceeded to terminate that licence to the detriment of TTL. The court held that Mr Burnell had breached his to duty to avoid conflicts of interest, not because he had acquired shares in the licensor, but because he had used information obtained as a director of TTL to the detriment of TTL by terminating the licence.  It should be noted that a former director would not normally be liable simply for setting up a competing business after they have resigned, unless they have breached their duties while still a director. However, a former director may be liable to their former company for actions after they cease to be a director if they exploit a business opportunity that should be treated as the company’s property.

If you are a company or an exiting director and you are concerned about any potential breach of director’s duties, please contact our Corporate and Commercial Team on 01242 574244 or e-mail Head of Department, Jon Rathbone, at JDR@hughes-paddison.co.uk should you need any assistance.