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Can a director establish his own
competing company?

April 2017

“I am currently a director in a printing company. I find that
the owners are very conservative and are not interested in my
ideas for expanding the company. I’ve now started thinking
Commercial that I should start my own company, which will probably
compete directly with my current company. I don’t have a
restraint of trade, but I am worried that as a director I could
get into trouble if I do this. Can I start my own company?”

This is not a straightforward question to answer. Assuming there are no
contractual restrictions prohibiting you and ignoring aspects of unlawful
competition, the question boils down to whether your fiduciary duty
as a director of your current company, prohibits you from opening a
competing business.
A director of a company is relied on for his expertise and experience in
the business of the company. As such directors have a fiduciary duty
towards the company that in essence demands that a director be loyal
to the company and act in good faith and in the best interest of the
company when conducting business on behalf of the company. Such
a duty includes avoiding conflicts of interest and the promotion of self-
interest. These duties were embodied in our common law, but are now
given statutory force through section 76 of the Companies Act 71 of
2008.

This section addresses the position of a director, but leaves it open whether
these duties can be extended to a director that has resigned. Our courts,
on interpreting this section have deemed it appropriate to in certain
circumstances extend the fiduciary obligation of a director beyond his
resignation. For example, our courts have prohibited a director who has
resigned from a company from exploiting corporate opportunities which
rightfully belonged to the company for himself after he had resigned as
a director of the company. It was held that resignation from the office did
not terminate the director’s fiduciary obligation owed to the company.
The reason that our courts are open to the extension of the obligation
beyond resignation is an understanding that if not extended a director
could with impunity exploit opportunities for himself after merely having
resigned at the expense of the company he was a director at. This implies
though that the courts would not deem this to apply to a situation where
a former director acquired an opportunity after his resignation or where

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