Divorce and the family Business. Setting up in competition.
Divorce will always impact upon the dynamics of a family business. However what remedies are there available to one spouse where the other attempts to set up in competition. The following case explored this point and allowed an injunction to remain in place to prevent the Husband from competing with the family business which was in essence a Matrimonial Asset. However in this case the business was a company and any attempts to set up in competition would be in breach of his fiduciary duties in any event independent of the Divorce. It is always therefore important to look at the basis of the formation of the business and the express or implied terms thereof.
Judgment by Sir James Munby continuing an injunction against the husband in financial remedy proceedings by which he was restrained from competing with the family company of which he was the shadow director.
On 1 November 2013 Mr Justice Wood made a freezing order. The return date was before the President of the Family Division. The parties agreed that the freezing order should remain in place, subject to certain adjustments.
The President decided one issue (on which he handed down judgment) in relation to the successful family business, which was a matrimonial asset run by both the husband and wife throughout their marriage.
Paragraph 20 of the freezing order was an injunction against the husband from directly or indirectly engaging in any business that competed with a specified company or soliciting customers from, or attempting to sell, licence or provide similar services to any customers or client of the family company.
The wife alleged that the husband was deliberately competing with the family business in an attempt to depreciate the value of the matrimonial asset.
The President was not troubled by the factual foundation of the wife’s case but whether there was a legal basis for the continuation of the injunction. In particular whether the language of the order and that of s.37(2) of the Matrimonial Causes Act 1973 are not compatible and therefore the injunction shall fall to be made under s.37 of the Senior Courts Act 1981.
The court found for the wife on the following basis:
[paragraph 11] The husband was, on his own admission, a shadow director of the company. As such he owed a fiduciary duty to the company to act in the interests of the company and not to act in his own separate interests.
[paragraph 12] As such, it would be a breach of his fiduciary duty to set up and operate a competing business.
[paragraph 13] Any other corporate vehicle set up by the husband that did not compete with the family business was not in breach of the injunction, nor would the injunction fetter the operation of the company. If the company did compete, it would be a breach of the injunction. Therefore, paragraph 20 of the order remained in force..