Business relationships are like marriages. Some stand the test of time, others do not.
A company in which two or more unrelated parties are directors and shareholders is a very common structure. The parties involved usually know each other well and learn to accommodate each other’s idiosyncrasies for the good of the ongoing business. That frequently changes when business operators age or die bringing new people into the business.
The recent case of Advanced Fuels Technology v Blythe arose in that factual situation.
The company Advanced Fuel Technology (AFT) had operated for many years under the equal control and management of Mr Blythe and Mr Thompson. Mr Thompson died unexpectedly and disputes arose between his widow and Mr Blythe which ultimately resulted in Mr Blythe resigning from the company and becoming involved in a business that was competitive with AFT.
Mr Blythe was not under any contractual restraint of trade following his resignation but AFT nevertheless alleged that –
- His fiduciary duties as a director of AFT survived his resignation; and
- He had breached those duties by seeking to take up business opportunities with AFT customers or proposed customers to the detriment of AFT.
The Supreme Court of Victoria decided that –
- Statutory & fiduciary duties of directors do not simply end upon resignation;
- Whether there is any breach of duty will depend upon the circumstances of each case; and
- Calculated and surreptitious activity by a director with the view to involvement in a competitive business after resignation will likely breach both statutory and fiduciary duties even when there is no misuse of confidential information.
Each case will be decided upon its own merits but the clear principle is that a former director of the company will not be free to do as he or she may please to the detriment of the company following resignation.
At Everingham Solomons, we have the experience and expertise to assist in all corporate law matters because Helping You is Our Business.
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