Profit at your peril: Highest UK court reinforces strict ethic on corporate opportunities

A director cannot, without express permission of the company, go it alone and pursue a corporate opportunity that is in the same line of business as the company’s; and resigning in order to do so will not absolve them of this duty. The primary remedy for the company in this regard would be a disgorgement of profits. So strict is this ethic, and so narrow are its exceptions, that one may wonder if the rule is entirely reasonable in all cases. Nevertheless, in the landmark case of Rukhadze v Recovery Partners GP Ltd [2025] UKSC 10 the UK Supreme Court has recently rejected attempts to water down the fiduciary duties of directors in this regard.  

9 Jul 2025 4 min read Corporate & Commercial Law Alert Article

At a glance

  • In the landmark case of Rukhadze v Recovery Partners GP Ltd [2025] UKSC 10 the UK Supreme Court has recently rejected attempts to water down the fiduciary duties of directors.
  • Given the comparable statutory framework and shared company common law legacy between South Africa and the UK, the Rukhadze case adds much weight to the law in this area in South Africa too.
  • From a practical viewpoint, the court's stance in Rukhadze reiterates the importance of directors being trained on and reminded of their fiduciary duties and the company's conflicts of interest policies and procedures.

The case involved directors who exploited a multi-million dollar business opportunity entailing asset recovery services and who thereafter tried to argue for a ‘but-for’ causation test, namely that if in the ‘counterfactual’ scenario they would have landed that opportunity anyway and have reaped the profits, there was no duty to account for profits.

Under the South African Companies Act 71 of 2008 (South African Companies Act) and common law, directors have a fiduciary duty towards their companies to avoid conflicts of interest and, more importantly, to not abuse their position for personal gain. Directors who breach their fiduciary duties face the risk of being ordered to pay back any profits made from such abuse of their position and, as such, may face personal liability for losses caused to their companies. The courts have always been extremely miserly in developing any ‘out’ for a director in this regard, the fear being that directors would start concentrating more on how to engineer themselves into the out rather than using all efforts to bring the opportunity to the company.

In South Africa, the duty also applies to “prescribed officers”, and not only directors who are on the board. Prescribed officers would include the most senior executives.

Facts

In Rukhadze the plaintiff companies were incorporated by S Inc with a view to undertaking asset recovery services for the family of a deceased billionaire who had died unexpectedly with disorganised assets. The defendants, who held senior positions with S Inc and the plaintiffs, were involved in the provision of those recovery services but subsequently fell out with S Inc, resigned from their positions and entered into an agreement with the family to provide the recovery services themselves. The court termed this a “disloyal resignation”.

It was argued by the defendant directors that a common law ‘but-for’ causation test should be applied, asserting that the court should not order an accounting for profits that would have nevertheless been earned through hypothetical profit-sharing agreements with their former employers. If successful, this argument would have brought a seismic shift in fiduciary law. The defendants essentially argued that the time had come for the law on this point to be revisited and developed. But there would be no such thing: the court vehemently rejected these assertions, noting that the rule does not involve delving into a speculative alternate reality, and that a relaxation of the rule in this regard would unduly water down the ethics around conflicts of interest. At most, the ‘but-for’ test can come into play at the end, for purposes of identifying and quantifying exactly the recoverable profits or damages, and this exercise is limited to tracing a causative link between the breach (which is established without a ‘but-for’ analysis) and the amount in question.

Alongside the firm stance on the ‘but-for’ argument was the court’s position that hypothetical consent of the company is irrelevant when considering corporate opportunities and conflicts of interest.

The result was an order obliging the directors to account for all profits earned as a result of their breach (this was subject, however, to a 25% equitable allowance for their work and skill).

Applicability in South Africa

Given the comparable statutory framework and shared company common law legacy between South Africa and the UK, the Rukhadze case no doubt cements the law on this area in South Africa too. Section 76 of the South African Companies Act speaks directly to a director’s duties to avoid conflicts of interest and to not exploit corporate opportunities, by obliging a director to communicate all non-immaterial information to the whole board at the earliest practical opportunity and by prohibiting a director from using their position, or information obtained by them as a director, for the advantage of anyone other than the company or its wholly-owned subsidiary.

From a practical viewpoint, the court’s stance in Rukhadze reiterates the importance of directors being trained on and reminded of their fiduciary duties and the company’s conflicts of interest policies and procedures, if any. The courts have, however, alluded to the possibility of the company contracting with the director to regulate which buckets of corporate opportunities are strictly the company’s and which buckets the director is free to pursue (e.g. Modise and Another v Tladi Holdings (Pty) Ltd [2020] 4 All SA 670 (SCA)). A company’s shareholders and directors should always consider whether such a contractual provision is appropriate and necessary given the nature of the company’s business and the outside interests of a director, and if so, these provisions should be captured in the shareholders agreement or memorandum of incorporation.

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