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Hard2 marksMultiple Choice
Management, administration and the regulation of companiesSyllabus FDirectors' DutiesResignation
This question is part of a case study — click to read the full scenario(Case 55)

Section B - Scenario 4

SCENARIO: 'BioSynth Plc' is a synthetic biology firm. Dr. Aris is a director. BioSynth is approached by an investor offering a lucrative contract to develop a new enzyme. The board of BioSynth declines the contract because the company lacks the specific lab equipment required. Dr. Aris, seeing the potential, resigns from BioSynth and sets up his own private company, 'ArisEnzymes Ltd', which buys the equipment and takes the contract for itself, making a £500,000 profit.

QUESTION: Which specific statutory duty under the Companies Act 2006 has Dr. Aris most likely breached?

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ACCA · Question 56 · Management, administration and the regulation of companies

Section B - Scenario 4

SCENARIO: 'BioSynth Plc' is a synthetic biology firm. Dr. Aris is a director. BioSynth is approached by an investor offering a lucrative contract to develop a new enzyme. The board of BioSynth declines the contract because the company lacks the specific lab equipment required. Dr. Aris, seeing the potential, resigns from BioSynth and sets up his own private company, 'ArisEnzymes Ltd', which buys the equipment and takes the contract for itself, making a £500,000 profit.

QUESTION: Dr. Aris argues that he is not liable because he resigned before taking the contract. Is this a valid defense?

Answer options:

A.

Yes, resignation immediately terminates all directors' duties.

B.

Yes, because the company had already formally rejected the contract.

C.

No, the duty to avoid conflicts of interest regarding the exploitation of property, information, or opportunity continues after resignation.

D.

No, but only if his employment contract contained a non-compete clause.

How to approach this question

Recall which directors' duties survive resignation under s.170 CA 2006.

Full Answer

C.No, the duty to avoid conflicts of interest regarding the exploitation of property, information, or opportunity continues after resignation.✓ Correct
Section 170(2) of the Companies Act 2006 explicitly states that a person who ceases to be a director continues to be subject to the duty in section 175 (avoiding conflicts of interest) as regards the exploitation of any property, information, or opportunity of which they became aware at a time when they were a director. Resigning to take the opportunity is a clear breach (as seen in IDC v Cooley).

Common mistakes

Believing resignation acts as a clean break from all fiduciary obligations.
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