Newsflash
Business law and corporate governance

On 25 June 2020, the Supreme Court decided that the principle of good faith and loyalty that is imposed on company directors during their mandate ceases at the end of it. As a result, a former director may now exercise an activity that competes with the activity of the company of which he was a director. However, he remains bound not to engage in acts of unfair competition.

In a decision handed down on 9 November 2017, the Antwerp Court of Appeal had imposed a competition ban on a former director after the end of his mandate.  The Court’s decision was based on the principle of “a continuing duty of good faith”. The Court of Appeal had considered that the director of a company has an obligation of loyalty to the company by virtue of the mandate and that this obligation does not end at the end of the mandate, but “persists” for a period after the end of the mandate which was set by the Court at 12 months. The decision thus laid down that a non-compete obligation limited to 12 months was justified because the company was small and the directors were responsible for recruiting and retaining customers.

This decision of 9 November 2017 was the subject of an appeal to the Supreme Court, following which the Supreme Court overturned the Antwerp decision. The Supreme Court’s reasoning is based on the principle of the freedom to exercise an economic activity. This freedom can only be restricted by law or by explicit agreement. The Supreme Court interprets the law on the director's mandate contract as not entailing a prohibition of competition for a director after the end of his mandate.  According to the Supreme Court, the duty of loyalty of directors ends at the end of their term of office, unless otherwise agreed. The Court adds that the director concerned may not, of course, commit acts of unfair competition.

Action point

Remember to include a valid non-competition clause in agreements with directors. Their legal obligation of loyalty lasts only until the end of their term of office.