Very many small and medium-sized businesses have a guiding light at their head but that can itself render them vulnerable. A High Court case underlined the importance of taking professional advice so that safety systems are in place to ensure business continuity in the event of key employees' absence or departure.

The case concerned a small business, the success of which depended on a software package that stored its customers' details and data concerning all aspects of its business. The company's effective CEO resigned after falling out with his fellow directors. He asserted that he had been constructively dismissed.

The company subsequently launched proceedings against him alleging breach of fiduciary duty, wrongful interference with property and database rights, infringement of copyright and misuse of confidential information. His activities, both after his departure and during a period beforehand, were said to have substantially interfered with the conduct of the company's business. He denied any wrongdoing.

He was, amongst other things, alleged to have taken active steps to prevent the company from accessing its business-critical software and IT systems. Due to his alleged lack of cooperation, the company said that it had for months had difficulty accessing its own bank account. Following his resignation, he was said to have retained large amounts of the company's confidential data.

Ruling on the matter, the Court noted that the former CEO appeared to have conducted himself without the slightest regard for his fiduciary duties whilst he remained a director. He seemed to have operated on the basis that the business was 'his' to do with as he chose, without regard to any legal constraints. His stated objectives were to destroy the business and, in effect, to resurrect it via the medium of a newly formed company.

Following his resignation, he had no possible justification, save in response to a court order, for continuing to access any of the company's systems or to hold himself out as having authority to act on the company's behalf. The company was also plainly entitled to the return of any of its documents, whether in paper or digital form, or other property that remained in his possession.

The Court found that the company was entitled to the fullest degree of protection in respect of its electronic records, including its software, database and data relating to its clients and employees. Misuse of such material was likely to cause irreparable damage to its business.

The company having clearly established serious issues to be tried, the Court issued an injunction which, amongst other things, required the former CEO to enable it to resume full access to and control of its software and database and to deliver up relevant property and documents in his possession. Pre-trial orders were also made to restrain conduct on his part that would infringe the company's rights.

Cases involving access to company data and software are complex. Always refer to specialist lawyers for advice.

Contact Baljit Chohan b.chohan@sydneymitchell.co.uk or Emma-Louise Hewitt e.hewitt@sydneymitchell.co.uk to discuss your individual circumstances.

 

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