A fiduciary duty is an obligation to act in the best interest of another party. For example, a company’s board member has a fiduciary duty to the company’s shareholders, a trustee has a fiduciary duty to the trust’s beneficiaries, and an attorney has a fiduciary duty to a client.
Sections 75 and 76 of the Companies Act 71 of 2008 refer to the various fiduciary duties which are applicable to directors of companies, in addition to those fiduciary duties in terms of the common law.
However, what are the implications of these fiduciary duties when a director resigns from a company, specifically section 76(2)(b) which deals with the obligation of the director to disclose a business opportunity to the company? In the recent high court case of Big Catch Fishing Tackle Proprietary Limited and Others v Kemp and Others (17281/18)  ZAWCHC 20, the high court dealt with this specific issue.
The company, the applicant in the matter, launched an urgent interdict application against the respondents, which included an ex-director and a 50% shareholder of the company, to interdict and restrain the respondents from, inter alia, conducting business or engaging with any of the company’s customers, service providers or suppliers.
The high court dismissed the applicant’s claim for an interdict on the basis that the fiduciary duties did not extend beyond the resignation of the ex-director in this particular case.
In reaching its decision, the high court considered the relevant case law and well-established principles regarding the implications of fiduciary duties of a director who has resigned from a company.
Upon a director’s resignation from a company, the fiduciary duties would no longer apply to the ex-director unless a breach of these duties had been committed. In this regard, the breach would have to adversely affect an interest of the company, which interest deserves protection, and/or the use of confidential information in committing the relevant breach. This relates specifically to commercially valuable and confidential information of the company which the director would have obtained whilst in her position as a director.
If the director interferes and/or sabotages the company’s existing contractual opportunities, or if she uses confidential information to advance the interest of a rival or her own business or to prejudice the company, this would also constitute a breach of her fiduciary duties.
A director is therefore not permitted to pursue a business opportunity which the company is actively pursuing. In situations where the resignation of the director may have been prompted by the desire to acquire this business opportunity of the company for herself, or in instances where the director’s position in the company drew her attention to this business opportunity, there would be a clear breach of the director’s fiduciary duties.
The above notwithstanding, if a director became aware of a business opportunity after her resignation from the company, she would be entitled to pursue same despite the fact that the business falls within the same domain as that of the company as long as this was not in contravention of any unlawful competition principles. This would also be affected if a valid restraint of trade existed between the parties.
The high court in the Big Catch matter reiterated that the expertise and knowledge obtained during the director’s tenancy belong to the director, and not to the company, and further stated that in terms of section 22 of the Constitution, every person has the right to choose their trade, occupation or profession freely. Accordingly, the courts are not inclined to limit people’s opportunities to work.
Although a director is entitled to resign as a director from a company and may be permitted to take steps to create a competing company, she is not entitled to divert business opportunities to herself nor may she engage in unlawful competitive behaviour, which would include the apportionment of the company’s business.
by Alix Moreillon
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).