A company director secretly sets up a competing business. He diverts clients to it, uses his existing company’s confidential information, staff and equipment, and receives the resulting revenue through the new company.
There are several fairly obvious legal problems with that scenario. Breach of directors’ duties, misuse of confidential information and breach of an employee’s duty of fidelity are among them.
A recent High Court judgment has added another: the director and the company he controls may also be liable for unlawful means conspiracy.
In Lux Films Ltd v Fowler & Anor [2026] EWHC 963 (KB), the High Court held that a sole director and shareholder could, for the purposes of civil law, conspire with his own company. The decision potentially gives businesses and their advisers another important route to pursue where a director uses a separate corporate vehicle to divert opportunities or extract value from the company they are supposed to serve.
English company law ordinarily respects the separate legal personality of a company. In Lux Films, that separateness worked both ways. If an individual chooses to conduct a scheme through a legally separate corporate vehicle which receives the resulting business and profits, the company may also find itself facing liability.
What happened in Lux Films v Fowler?
Lux Films was a small UK video production company owned equally by three directors and shareholders. There was no shareholders’ agreement. The three directors later became salaried employees, although they did not have written employment contracts.
Relations between the directors deteriorated. One of them, Andrew Fowler, wanted to leave the business and discussions about an exit began.
While he remained a director, shareholder and employee of Lux, Fowler began carrying out work through Andrew Fowler Media Limited, or AFML, a company of which he was the sole director and shareholder.
The court found that this went considerably further than preparing to establish a competing business. Fowler used Lux’s office and equipment, company email and digital infrastructure, confidential information, employees, freelancer relationships and goodwill to develop the competing business. Lux’s footage and testimonials were reused, pricing structures and budgets were mirrored, and junior employees paid by Lux were directed to assist with work for AFML.
The court also found that Fowler diverted a number of existing or prospective clients. In one instance, he contacted a Lux client through AFML while falsely representing that Lux had been rebranded as the new company.
Contemporaneous messages proved particularly damaging. Fowler described “taking business away from Lux” as “a bit naughty” given that he remained a director and suggested it might be “hard to prove”. The judge regarded this as evidence that Fowler understood his conduct was inconsistent with his duties and appreciated the need to conceal it.
The director’s duties did not disappear because the relationship had broken down
This part of the judgment contains an important lesson for directors involved in shareholder disputes. Fowler argued that once relations had deteriorated and he had effectively been excluded from the business, he was entitled to pursue his own interests.
The High Court rejected that argument. He remained a director and employee, continued to have access to the company’s systems and premises, continued dealing with employees and clients and continued receiving his salary. His duties therefore continued.
As the judge put it, a deterioration in relations or unresolved exit negotiations does not release a director or employee from their existing obligations. That distinction can become critical during a contentious departure. A director may have decided psychologically that the relationship is over months before their legal relationship with the company actually ends. Until their position changes formally, their statutory and fiduciary duties continue.
Business opportunities belong to the company
Fowler also argued that some of the work diverted to AFML was work Lux did not want or could not perform. Again, the court rejected the argument.
A fiduciary cannot simply decide that the company probably would not want an opportunity and appropriate it personally. Where an opportunity falls within the company’s line of business, it must be disclosed so that the company can decide whether to pursue it.
Directors routinely encounter opportunities through clients, suppliers, professional networks, conferences and other relationships. The question is not simply whether they personally believe the company would take the opportunity. Where the opportunity has arisen through the directorship and falls within the company’s business, taking it privately can create a serious conflict.
The court held that Fowler breached his fiduciary duties and the statutory duties under the Companies Act 2006 to promote the success of the company, exercise independent judgment and avoid conflicts of interest under sections 172, 173 and 175 respectively.
Preparing to compete is different from actually competing
There is another useful distinction in the judgment for employers dealing with departing senior staff. An employee may generally take certain preparatory steps towards future competition. Fowler argued that this was all he had done.
The court disagreed. While still working for Lux he had solicited clients, performed competing work, used Lux’s confidential information and resources and received payment for work carried out through AFML.
The court summarised the boundary clearly: preparatory steps cannot themselves involve competition, misuse of confidential information or conflicts of interest.
For companies, that makes the circumstances surrounding a senior departure particularly important. Registering a company or making plans for a future venture may be one thing. Redirecting customers, downloading commercially sensitive information or carrying out competing work while still employed is very different.
What counts as confidential information?
The judgment is also a useful reminder that commercially confidential information does not have to consist of a single dramatic trade secret.
Lux’s protected information included client contacts and preferences, prospective opportunities, pricing, budgets, tender documents, contractual terms, proposals, templates, production methodologies, freelancer and supplier information and its work product.
Some individual elements might not have been secret if viewed separately. The court nevertheless found that the information derived commercial value from its collation, context and currency and could give a rival a competitive advantage.
This is significant for modern businesses whose valuable information may sit across CRMs, shared drives, email, project-management systems and cloud services rather than inside a document marked “confidential”.
Can someone really conspire with their own company?
This was the legally novel aspect of the case. AFML argued that Fowler could not conspire with the company because he was its sole director and shareholder. In effect, there was only one human mind involved.
The court drew a distinction between criminal conspiracy and the civil tort of unlawful means conspiracy. For unlawful means conspiracy, the court identified the relevant elements as a combination or agreement between two or more persons, concerted action, unlawful means, and resulting loss accompanied by the necessary intention to injure.
Mr Justice Sweeting held that the focus in civil conspiracy is on the practical reality of concerted action between separate legal persons. Fowler had acted in one capacity as a director and employee of Lux, misusing information and diverting opportunities. AFML, acting through Fowler in his capacity as its director, then contracted with those clients, received the money and exploited Lux’s information and goodwill.
Those were, the judge found, “sequential and interlocking steps in a single scheme”. Fowler supplied the unlawful means and AFML realised the gain. The fact that Fowler controlled AFML did not prevent the necessary combination from existing. The High Court concluded that where a company is used as the vehicle through which unlawful conduct is implemented and profits realised, civil conspiracy can be established despite the unity of control.
The decision has been described as the first High Court ruling squarely determining that a sole director can conspire with their own company for the purposes of this economic tort.
Why does this matter to businesses?
The decision is important because using another limited company does not necessarily isolate the individual from the consequences of wrongdoing or shield the recipient company.
AFML itself owed no fiduciary or employment duties to Lux. That did not prevent it being liable. The court found AFML liable as a knowing recipient of benefits obtained from Fowler’s breaches. Fowler was its sole director and controlling mind, so his knowledge of how those opportunities had been obtained could be attributed to AFML. The court expressly rejected the proposition that AFML could “shelter behind corporate form”.
The judgment also held that where the new company functions as the corporate vehicle through which the fiduciary profits from their wrongdoing, it may be required to account for those profits alongside the individual.
For a claimant, that can be significant. In a director-diversion case, litigation may potentially reach both the individual who breached their duties and the company into which the diverted contracts, revenue or other benefits flowed.
It also means advisers assessing a suspected breach should look beyond the individual’s conduct. Where did the resulting business go? Who contracted with the clients? Which entity invoiced them? Where did the money ultimately land?
The governance failures behind the litigation
There is another striking feature of Lux Films. For a business that had developed from an informal group of freelancers into an established company, some basic governance arrangements had never caught up.
There was no shareholders’ agreement. The directors had become employees without written employment contracts. Strategic decisions were largely informal and based on trust.
None of that excused Fowler’s conduct. The court was able to apply statutory, fiduciary and implied contractual duties regardless.
It did, however, leave significant questions to be reconstructed after the relationship collapsed, including what outside work directors were permitted to undertake and how much notice Fowler was required to give.
In the absence of a contractual notice provision, the court eventually concluded that six months was reasonable given Fowler’s seniority and importance to the business. He had given only seven days.
Businesses should not generally want questions of that importance answered for the first time by a High Court judge.
What should businesses consider?
There are several practical lessons from the case:
Put governance arrangements in writing. Shareholders’ agreements, directors’ service agreements and employment contracts should address decision-making, conflicts, external interests, confidentiality, notice and departures.
Have a clear conflicts process. Directors should understand how potential conflicts and corporate opportunities must be disclosed and authorised.
Define and protect confidential information. Appropriate contractual provisions should be backed up by sensible information security, access controls and records showing who can access commercially sensitive systems.
Avoid key-person control over company systems. One individual having exclusive administrative control over important systems, data or client records can create substantial operational and legal risk during a dispute.
Manage director departures as a risk event. Access permissions, data transfers, client communications, company property and potential competing activity may all require attention.
Preserve evidence early. Emails, messages, CRM records, audit logs, downloads and access records can become central to establishing what happened. In Lux Films, contemporaneous messages were particularly powerful evidence.
Do not assume a separate company breaks the chain of liability. If another entity knowingly receives and exploits the proceeds of a director’s breach, claims may potentially extend to that entity as well.
What should law firms advising businesses consider?
For lawyers advising companies in a shareholder or director dispute, the judgment suggests that the initial analysis should go wider than a conventional employment or breach-of-director-duty claim.
Where there are allegations that opportunities have been diverted into another company, advisers should consider the corporate structure surrounding the alleged wrongdoing, the ownership and control of the receiving entity, the movement of clients and revenue and whether confidential information or corporate assets have been used.
Potential causes of action may include breach of fiduciary and statutory duties, breach of confidence, contractual or employment claims, knowing receipt and, following Lux Films, unlawful means conspiracy even where the alleged receiving company has only one director and shareholder.
Timing can also matter. Lux obtained interim injunctive relief requiring the delivery up and deletion of documents and disclosure about competing activity before the eventual liability trial.
Law firms should therefore consider quickly whether evidence needs preserving, access to confidential information needs restricting or interim relief may be necessary before assets, information or business relationships move further beyond the company’s control.
