The courts have recently shown again that they will crack down on directors who put their own interests before their fiduciary duties as directors of the company, to the extent of causing the company detriment.
In the case of British Midland Tool Ltd. v Midland International Tooling Ltd. , a group of directors decided to set up a new company to compete with their existing employer, working on their plans while still employees.
They then resigned and immediately set up in competition with their old company. The judge took the view that while they were directors of the first company, they owed it a duty of care, which would include informing the company of any activity that might cause it loss: this included their own plans. Very substantial damages were awarded against the miscreant directors.
While this case provides further support for companies seeking redress in this type of situation, there is no substitute for having the right contractual agreements in place with senior employees, containing appropriate restrictive covenants. Review the contracts of your senior employees to ensure you feel your business is inadequately protected.
