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The fiduciary duty of an officer also includes a prohibition on competition with the company’s business and the exploitation of its business opportunity

January 2, 2022
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A CEO of a company for distribution of car parts opened a competing company while managing the company.

The Court held that the CEO breached his fiduciary duties and therefore the company is entitled to data on the competing company. The duty of trust imposed on an officer of a company includes various prohibitions, including, inter alia, a prohibition on conflicts of interest, a prohibition on competition with the company's business and a prohibition on taking advantage of company business opportunity. When it comes to the prohibition of competition, a distinction must be made between situations where the company’s field of business is unique and typical only of the company, which may increase the possibility of enforcing the prohibition, and situations in which the field is identified with the officer himself, where it might be harder to enforce the prohibition. As far as taking advantage of company business opportunities, one must first identify what the company's area of activity is and what opportunities it includes. If consent of the company shareholders can be found as to the company's field of activity, this consent should be taken into account and then it should be examined whether the company has sufficient resources pursue the opportunity, how the opportunity came to the officer, etc. Here, the shareholder served as the CEO of the company in parallel with his engagement with the other company which field of business, as it appears in the company documents at the Companies Registrar is the same as the company's activity, and as such, his activity constitutes a clear beach of the prohibition to act in competition with the company's business and may even amount to taking advantage of company business opportunities and breaches his fiduciary duties as an officer in the company. Thus, the company is entitled to data on the competing company managed by the CEO.