7 September 2020
Lending Focus - September 2020 – 4 of 7 Insights
A director diverted a business opportunity from Company A to Company B. The director argued that the diversion was not in breach of his duty to avoid conflicts of interest.
As Company A was close to insolvency (or was insolvent), it was not able to trade and was therefore incapable of exploiting the business opportunity. The director argued that he could not be subject to duties which required him to compel Company A to continue to trade, and hence there was no conflict of interest.
The court rejected the argument. As a fiduciary of a company, a director must not profit from his position of trust, even if that profit could not have been made by the company concerned. This stringent approach is even more appropriate when the company is nearly insolvent or is insolvent, because such companies have a greater need for protection.
by Nick Moser
by Multiple authors