A Director/Shareholder Has Started a Competitor Company – What Can I Do About It?

You should check the content of any Director’s service agreement and any Shareholders agreement for express clauses. Usually, there are express clauses requiring that an employee or officer of a company cannot have an interest in any other entity/company, other than a nominal shareholding for example in public listed companies, as investments. There may be clear breach of contract claims that either/both the company itself has as a form of derivative claim in accordance with s.260 Companies Act 2006, and/or that other Shareholders have on the basis of unfair prejudice in accordance with s.994 Companies Act 2006. 

Starting a competitor company will also amount to a breach of Director’s duties, including to avoid conflicts of interests as set out in section 175 Companies Act 2006. 

There may be a host of other claims that are appropriate including seeking disclosure of information against both the new company and the Director, an account/investigation into the scale of monies and information unlawfully diverted to the new company, and court orders that the new company must pay those monies back into the pre-existing company. Shareholders may additionally pursue additional claims against the Shareholder personally. 

In these types of situations, there is considerable risk of irrevocable damage financially and to reputation. The payment of damages and money 12 months later may not be sufficient. The court recognises this in many situations and can deal with these disputes urgently providing there has not been a delay and you act promptly. Given the urgency we frequently also apply for, and successfully obtain, injunctions, to preserve the position and if need be force settlement not least as we then seek to recover costs from the opponent.