Can a Director Set Up a Competing Business Before Leaving?

A recent High Court decision has provided a stark reminder that directors cannot put their own interests ahead of those of the company they serve.

In Lux Films Ltd v Fowler & Another [2026] EWHC 963 (KB), the Court considered what happens when a director establishes and operates a competing business while still acting as a director and employee of the company. The judgment highlights the significant legal risks that can arise when business relationships break down and competing interests emerge.

The background

Lux Films Ltd was a video production company owned equally by three directors and shareholders. As relationships between the owners deteriorated, one of the directors, Andrew Fowler, indicated that he wished to leave the business. However, while discussions regarding his departure were ongoing, he remained a director, shareholder and employee of Lux Films.

During this period, Mr Fowler began operating a competing media production company, Andrew Fowler Media Ltd (AFML), of which he was the sole director and shareholder. Lux Films alleged that he used company resources, confidential information, employees and business opportunities to benefit the competing business and divert work away from Lux Films.

The company brought claims against Mr Fowler and AFML for breaches of fiduciary duties, statutory directors’ duties, misuse of confidential information and unlawful means conspiracy.

What did the Court decide?

The High Court found comprehensively in favour of Lux Films. It concluded that Mr Fowler had breached the duties he owed to the company by diverting opportunities and using company resources for the benefit of his competing business while he remained a director and employee.

Importantly, the Court rejected arguments that Mr Fowler had merely been taking preparatory steps towards establishing a business after leaving Lux Films. Instead, it found that he had crossed the line from preparation into direct competition with the company whose interests he was still obliged to protect.

The Court also found that Lux Films had succeeded in establishing liability against both Mr Fowler and AFML, with issues relating to financial recovery and remedies to be determined separately.

Directors’ duties continue until they leave

A key lesson from the judgment is that directors’ duties do not disappear simply because relationships within the business have broken down or because a director intends to leave.

Directors owe fiduciary duties to their company under sections 171-177 of the Companies Act 2006; including duties to promote the success of the company (s.172), avoid conflicts of interest and not exploit corporate opportunities for personal gain (s.175). Those obligations continue until a director formally ceases to hold office.

While a departing director may generally make limited preparations for a future venture, the Court’s decision illustrates that there is a clear distinction between preparing to compete and actively competing. Where a director diverts clients, opportunities or confidential information before leaving, they risk substantial legal claims.

An important development in the law

One of the most significant aspects of the judgment concerns the tort of unlawful means conspiracy.

The defendants argued that a company and its sole controlling director could not conspire together because they were effectively one and the same. The Court rejected that argument and held that, in principle, a sole director and a company under their control can be capable of forming the necessary combination required for a civil conspiracy claim.

This is an important development because it potentially broadens the remedies available to businesses where a director uses a separate corporate vehicle to facilitate wrongdoing. The Court emphasised the distinct legal personalities of the individuals and companies involved when considering liability.

Practical lessons for business owners

The dispute also demonstrates the value of putting appropriate governance arrangements in place from the outset.

The Court noted that Lux Films operated without a shareholders’ agreement and that there were no written employment contracts between the directors and the company. Although Lux Films was ultimately successful, clear contractual protections may have reduced the scope for dispute and provided greater certainty for all concerned.

Businesses should consider whether they have:

• Shareholders’ agreements in place;
• Directors’ service agreements;
• Confidentiality obligations;
• Restrictive covenants; and
• Clear exit provisions for directors and shareholders.

These measures can help protect the business if relationships break down and may reduce the risk of costly litigation.

How can we help?

Disputes involving directors and shareholders often arise when an individual is preparing to leave a business or establish a competing venture. Allegations of diverted opportunities, misuse of confidential information and breaches of directors’ duties can have serious commercial consequences for all parties involved.

At Swinburne Maddison, our Commercial Litigation team advises businesses, directors and shareholders on a wide range of corporate and commercial disputes, including shareholder disagreements, breaches of directors’ duties, partnership disputes and injunction applications.

If you are concerned about the actions of a director, shareholder or former employee, our team can provide practical advice on protecting your business and resolving disputes effectively.