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Medium2 marksMultiple Choice
Management, administration and the regulation of companiesSyllabus FDirectors' DutiesRemedies
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 57 · 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: What is the most likely remedy BioSynth Plc will seek against Dr. Aris for this breach?

Answer options:

A.

An injunction to stop him working in biology.

B.

An account of profits, requiring Dr. Aris to hand over the £500,000.

C.

Damages for breach of contract limited to his director's salary.

D.

Criminal prosecution for theft.

How to approach this question

Identify the equitable remedy used when a fiduciary makes a secret/unauthorized profit.

Full Answer

B.An account of profits, requiring Dr. Aris to hand over the £500,000.✓ Correct
Because directors are fiduciaries, any personal profit made in breach of their duties (such as taking a corporate opportunity) is held on constructive trust for the company. The company will seek an 'account of profits', forcing the director to hand over the £500,000, regardless of whether the company itself suffered a financial loss.

Common mistakes

Thinking the company can only sue for damages if it actually lost money. In fiduciary law, the focus is on stripping the wrongdoer of their illicit profit.
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