A director who resigns and then takes up a business opportunity that belonged to the company can still be made to answer for it. In Singapore, a fiduciary duty does not always end on the day of resignation, especially where the director left in order to take the opportunity, or used what he learned as a director to win it. The company can ask the court for an account of profits, compensation, or a constructive trust. The outcome depends on how the opportunity arose and why the director left.
What does “diverting a corporate opportunity” mean in practice?
A corporate opportunity is a business chance that the company was pursuing, or reasonably expected to pursue, and that the director only learned of because of the directorship. Examples are a customer tender, a distribution agreement, a property purchase, or an acquisition target. The problem arises when the director takes it personally, or through another company, without the board’s informed consent.
Our guides on court remedies for breach of fiduciary duty and on recovering secret profits explain the remedies when a sitting director does this. This article deals with the harder, more common variation: the director resigns first, and the opportunity is taken afterwards.
Why does the timing of the resignation matter?
Many directors assume that once their resignation is filed with ACRA, they are free to compete. That is not automatically so. The courts look at the substance, not the filing date. In broad terms, the questions are these:
- Did the director resign because of the opportunity, or to be free to take it?
- Was the opportunity already “live” for the company, for example in negotiation, under a tender, or in an active pipeline?
- Did the director use confidential information or relationships gained in office to obtain the opportunity?
- Was the director pushed out of the company, or did he leave voluntarily?
- Did the board know about the plan and agree to it with full information?
English decisions, which Singapore courts treat as persuasive, have said that resignation is not itself a breach of duty, but that a director who resigns and then exploits an opportunity he was in the course of obtaining for the company may still be liable if there is a real connection between the resignation and the later business. Where the director had effectively been excluded from the company, the position can be different. Singapore courts have not been uniform in applying these principles to every fact pattern, so a lawyer should assess your facts against current local authority.
What does the Companies Act say?
Section 157 of the Companies Act 1967 contains the statutory duties of directors. Under section 157(2), an officer or agent must not make improper use of information acquired by virtue of his position to gain an advantage for himself or another person, or to cause detriment to the company. Under section 157(3), a person who breaches this is liable to the company for any profit made or damage suffered, and it is also an offence. The definition of “officer” in the section is drafted to include a person who has held office, so the statutory duty about information is not simply switched off on resignation. Check the current wording on Singapore Statutes Online.
These statutory duties sit alongside the common law fiduciary duties described in our guide to a director’s fiduciary duties and how the courts apply them. A company can rely on both.
Which facts help the company, and which help the former director?
| Fact | Tends to help the company | Tends to help the former director |
|---|---|---|
| Stage of the opportunity | Already in negotiation or tender when he left | Not yet identified, or only a general market possibility |
| Reason for leaving | Left shortly before taking the deal and the timing is hard to explain | Left after a genuine dispute or was removed, with no plan to take the deal |
| Source of the opportunity | Came through company contacts, emails or board papers | Came from his own pre-existing network, unrelated to the company |
| Confidential information | Used pricing, client lists or strategy from his time in office | Used only general skill and experience |
| Company’s capacity | Company was able and willing to take it | Company had told him it would not pursue it, or could not fund it |
| Consent | None given, or given without full disclosure | Informed approval recorded by the board or shareholders |
| Timing after exit | Deal concluded within weeks or months | Long gap, with independent effort in between |
Informed consent is the key defence. A conflict that was properly disclosed and approved is a different case from a conflict that was hidden. Our guide on conflicts of interest and related party transactions explains what disclosure normally involves.
Example: the director who left before the contract was signed
Example (hypothetical): A three-director engineering company has spent six months negotiating a maintenance contract with a developer. One director, who led the negotiations, resigns on a Friday, citing “personal reasons”. Three weeks later, a new company that he owns signs the same contract with the same developer, at a price close to the one in the company’s last draft.
The remaining directors suspect that the resignation was timed to take the deal. The board’s emails show he had the draft pricing. The company’s strongest points are that the contract was live, that the information came from his office, and that the timing is close. His likely response is that he left because of a dispute about bonuses, that the developer approached him personally, and that the company would not have won the work anyway. A court would weigh all of this on evidence. Nothing in this example predicts how any real case would turn out.
What can the company claim?
- Account of profits. The former director hands over the profit he made from the opportunity, not the company’s loss. The company does not need to show it would have won the work itself.
- Equitable compensation. If the company suffered loss that exceeds the director’s profit, it may claim for the loss. The company generally has to choose between profit-based and loss-based relief once it has the facts.
- Constructive trust. If the profit has been put into identifiable property, such as shares in the new company, the court can treat it as held for the company. See Bankers Trust orders and tracing company funds for how money is followed.
- Claims against the new company and helpers. A new vehicle that knew of the breach, or people who helped, may be liable. Our guide to dishonest assistance and knowing receipt covers this.
- Injunction. Where the contract is not yet performed, the company may ask the court to stop further performance or to preserve assets while the claim is heard.
A court may allow the former director a fair allowance for genuine skill and effort in earning the profit, particularly where the profit came largely from his own work. The extent of any allowance is a matter for the court.
Who brings the claim, and how does it start?
The claim belongs to the company, so it is normally decided by the remaining directors. If the director who diverted the opportunity controls the board or holds most of the shares, a minority shareholder may need leave to bring a derivative action in the company’s name, as set out in our guide to derivative actions under section 216A. A liquidator can also bring the claim if the company is in liquidation.
A civil claim under the Rules of Court 2021 usually begins with an originating claim. Before that, companies normally follow these steps:
- Secure the evidence: emails, board papers, drafts, tender files and device logs from the period before the resignation.
- Establish what the company was doing on the opportunity and when.
- Identify the former director’s new business and any link to the deal.
- Check the director’s service agreement, shareholders’ agreement and constitution for non-compete, confidentiality or notice terms.
- Send a letter of demand, with a request that documents be preserved.
- Ask a lawyer whether urgent court orders are justified.
What documents should the company gather?
- Board minutes and resolutions covering the opportunity.
- Emails and chat messages with the counterparty, including drafts and price proposals.
- The resignation letter, the ACRA filing and any exit correspondence.
- Employment or director service agreements, with restrictive covenants.
- The new company’s ACRA profile, showing incorporation date and ownership.
- Records of what the company spent pursuing the opportunity.
- Any documents showing the company’s capacity, such as funding or staffing.
How long does the company have to act?
Time limits depend on the cause of action. As a general guide, claims for breach of trust or fiduciary duty are often treated as subject to a six-year period under the Limitation Act 1959, with exceptions under section 22 where there is fraud or where trust property is still held by, or has been converted to the use of, the wrongdoer. Equity may also refuse relief where a claimant has delayed unreasonably (laches). Whether section 22 applies to a particular claim is a legal question. Do not assume that either the six-year or the no-limit position applies; take advice early and read the current Act on Singapore Statutes Online.
How can a company prevent this happening?
- Keep a clear record of which opportunities the board has chosen to pursue, and when it decided not to.
- Require directors to disclose outside interests, and record decisions to consent.
- Limit access to pricing and client data to those who need it.
- Put reasonable, properly drafted restrictive covenants in service agreements. Their enforceability depends on the wording and the legitimate interest being protected.
- For shareholder-directors, consider exit terms such as those in good leaver and bad leaver clauses.
- If a director also works as an employee, see how our article on an employee running a competing business approaches the employment side.
Frequently asked questions
Can a director take a business idea after resigning?
Often yes, if the idea was not the company’s opportunity and the director used no confidential information. The risk lies in taking a live company opportunity, or one obtained through the directorship, especially when the resignation was timed to enable it.
Does the company have to prove it would have won the contract?
Not for an account of profits. That remedy focuses on what the director gained. It matters if the company claims compensation for its own loss, because the company then has to show the loss it suffered.
Does board approval cure the problem?
It can, if the approval was informed and properly given, and the approving directors were not themselves conflicted. Approval obtained after the director has already taken the deal, or on incomplete facts, is much weaker.
What if the director’s shares are the only thing of value?
Shares in the new company bought with the profit may be traceable. A court can, in suitable cases, order that they be held for the claimant company. Tracing and preservation steps should be taken early.
Can the other directors simply remove the director instead?
Removal under section 152 stops future conduct but does not by itself recover a profit already made. See how to remove a director from a Singapore private company. Removal and a damages claim can run together.
Need help with a director who took a company opportunity?
If your company, or you as a director or shareholder, is dealing with a former director who took a business opportunity, contact the Raffles Corporate Services team at [email protected] or on WhatsApp at +65 8501 7133 or +65 9018 0072. We will help you understand the documents and deadlines. Where your matter needs a lawyer, we will refer you to a firm on our panel of Singapore law firms that regularly handles director and shareholder disputes. Raffles Corporate Services is a corporate services provider, not a law firm, and this article is general information, not legal advice.
The Raffles Corporate Services Editorial Team, Raffles Corporate Services