Key takeaway
Lux Films Ltd v Fowler & Andrew Fowler Media Ltd [2026] EWHC 963 (KB) is a timely reminder that directors cannot use their position, company resources or confidential information to divert business to a competing venture while still in office. The High Court found breaches of fiduciary, statutory and employment duties, confirmed that a sole director can conspire with their own company for the purposes of civil unlawful means conspiracy, and rejected attempts to use insolvency as a procedural shield shortly before trial.
What happens when a director starts competing with their company?
Most director disputes follow a familiar pattern.
Relations sour, a departure is agreed, and the parting is managed.
But occasionally a case comes along that reminds the market just how far things can go wrong when a director decides the rules do not apply to them. The High Court's decision in Lux Films v Fowler & Andrew Fowler Media is one of those cases and it carries important lessons for business owners, co-shareholders, and anyone who has trusted a colleague with the keys to the business.
How did the dispute arise?
Lux Films Ltd was a small UK video production company with three equal shareholders, each of whom was also a director and employee. The defendant, we will call him AF, took on primary responsibility for day-to-day administration, client relationships, and management of the company's digital systems.
He was, in other words, the person who knew where everything was, who everybody was, and how the business worked.
Relations between the directors deteriorated in early 2023 and AF indicated he wanted to leave. What followed was not a clean exit. While still a director and employee of Lux, AF secretly set up a competing video production company of his own. He then used Lux's office, equipment, IT systems, junior employees, footage, and client testimonials, with Lux's name replaced by his own, to divert business from one of Lux's most significant clients to his new venture.
The documentary evidence was damning. In contemporaneous messages, AF described taking business away from Lux whilst still a director as "a bit naughty" but noted it might be "hard to prove." In other messages, he spoke of trying to "bag the lot" of Lux's clients. By the time Lux obtained interim injunctive relief and AF made disclosure, his new company had generated in excess of £450,000 plus VAT in gross revenue, all from business that should have been Lux's.
Shortly before trial, both AF and his company entered insolvency voluntarily and without notice to Lux. An apparent attempt to automatically stay the proceedings. The Court proceeded anyway.
What did the High Court decide?
The High Court found comprehensively for Lux. The core findings on breach of fiduciary, statutory, and employment duty were clear on the facts, but four aspects of the judgment deserve particular attention from a practical perspective.
Can a one-man company conspire with its sole director?
AF argued, by analogy to criminal law, that there could be no civil conspiracy between him and his own company because, as its sole director and controlling mind, there was only one mind at work. It was the corporate equivalent of arguing that a person cannot conspire with themselves.
The Court rejected this decisively. Civil conspiracy is not concerned with whether two independent psychological actors exist. It is concerned with whether there is concerted action between two separate legal persons that causes damage to a third party. Where a director acts in one capacity to procure unlawful conduct and then causes his company, as a distinct legal entity, to receive and exploit the fruits of that conduct, the combination requirement is satisfied. The use of a corporate vehicle to profit from misconduct is no safe harbour in civil law. The Court will look through the arrangement to the practical reality of what occurred.
This is a significant clarification on a point that has been the subject of debate. Companies should be aware that the one-man-band structure offers no protection where the individual behind it uses that structure to cause injury to others.
Our Corporate team covered a similar topic on when directors can face personal liability.
When do preparatory steps become unlawful competition?
Directors who are planning to leave and set up in competition sometimes argue that their pre-departure activities amounted to no more than permissible preparation for future competition. The law does allow a director to take steps to prepare for future competition, but those steps must not involve actual competition, misuse of confidential information, or placing themselves in a conflict of interest whilst still in office.
AF's conduct went far beyond preparation. He had solicited Lux's clients, performed work through his new company, used Lux's confidential information, staff, and resources, and received payment for competing work, all while remaining a director and employee. That is not preparation. That is competition, carried out in breach of the most fundamental duties a director owes to their company.
We considered related fiduciary duty principles in our article on the Supreme Court’s strict profit rule decision, including why the duty of loyalty remains central where fiduciaries are tempted to take opportunities for themselves.
Does no written contract mean no notice period?
Having been exposed through the interim injunction, AF resigned on seven days' notice. The Court was unimpressed.
In the absence of a written contractual notice period, the Court implied a reasonable notice period of six months, having regard to AF's seniority, his significant managerial responsibilities, and his integral importance to a small business with no obvious replacement.
Seven days' notice was wholly inadequate and caused Lux additional loss through disruption to management continuity and the absence of any orderly handover.
The absence of a written contract does not mean the absence of contractual obligations.
For senior employees with significant responsibilities, a court will imply whatever notice period is reasonable and for a person in AF's position, six months was the answer.
For a wider discussion of reasonable notice in commercial relationships, read our article on reasonable notice and termination of informal commercial arrangements.
Will insolvency stop proceedings against a director?
The timing of AF's insolvency, voluntarily entered into shortly before trial, without notice to Lux was not lost on the Court. Neither bankruptcy nor voluntary liquidation gives rise to an automatic stay in all cases. Where insolvency appears strategically timed, or where resolving the underlying liability would benefit the insolvency proceedings themselves, the Court may decline to grant a stay and proceed to judgment. That is precisely what happened here.
For related analysis on contract termination and insolvency considerations, read our article on terminating a contract and the importance of getting it right.
What should business owners and directors take from Lux Films v Fowler?
For business owners and co-shareholders, the Lux Films case is a reminder that the risks posed by a dishonest director can be severe but so too are the remedies. Courts will look through corporate structures, hold directors to the full extent of their duties, and decline to allow insolvency to be used as an escape hatch when the timing is suspicious.
For directors themselves, the message is clear. Breach your fiduciary responsibilities, particularly whilst using the company's own resources to do so, and the consequences will follow, whatever corporate structure sits between you and the company you are harming.
Barnes Law’s Commercial Litigation and Dispute Resolution team advises clients on director disputes, breach of fiduciary duty, misuse of confidential information, unlawful competition, interim injunctions and commercial litigation strategy. For more information, please contact our Commercial Litigation and Dispute Resolution team to discuss how we can support you.
Written by Barnes Law Managing Partner Yulia Barnes.
