The recent case of Davies v Ford [2020] EWHC 686, has emphasised the need for Directors to avoid conflicts of interests when offering to provide services in the same field as their companies, even if their companies are unable to themselves provide that service.

This principle is vital for Directors to consider, including where their companies sponsor pensions schemes. Trustees may also need to bear in mind this duty of Directors as a key feature of their negotiations. These duties exist in addition to the moral hazard regime. Trustees may be in a position to challenge Directors based on Davies v Ford where Directors seek to prefer their own commercial interests over and above their fiduciary duties to their companies, creditors and other stakeholders.

In Davies v Ford, the company Greenbox Recycling Limited (GBR) was a waste clearance company that was subject to financial distress. Due to its finances, two Directors were of the view that GBR would have insufficient finances to carry out a site clearance project so they incorporated a new company Greenboc Recycling (Kent) Limited (GBRK).

The Judgment however confirmed that the duty of the Directors of GBRK to account for their profits applied despite the financial limitations of GBR, holding that: "[otherwise]  a director who diverted a business opportunity from a solvent company would be liable to account, but a director who diverted the same opportunity from an insolvent company would not.  That cannot be correct."

In short, in addition to the powers of trustees under their Rules, and also the moral hazard powers of the Regulator- the duty of Directors to account for profits arising due to conflicts of interests has been reconfirmed as an important matter to consider.