Guorui Song & Anor v Kes Smith & Ors

A director’s duty to account for profits is not defeated because the company could not have exploited the opportunity, was insolvent, or would have permitted the director to take it. The duty may continue after the fiduciary relationship ends.

Termination of a quasi-partnership joint venture does not release a director from duties owed to its companies. It may nevertheless affect unfair prejudice: a partner who withdraws funding and cooperation may not complain when the other pursues genuinely future opportunities. A matured opportunity or existing company asset is different. Breach of fiduciary duty alone does not establish unfair prejudice; real prejudice and unfairness must be shown, and insolvency may mean that shares remain valueless.

The Petitioners and Respondents were equal participants in an informal joint venture conducted through a holding company and operating subsidiaries engaged in property acquisition, development and refurbishment. Their relationship broke down after the first Petitioner withdrew funding.

The High Court dismissed a petition under section 994 of the Companies Act 2006, rejecting allegations of misappropriation, diversion of business opportunities and unfair remuneration: [2025] EWHC 949 (Ch). The appeal concerned whether opportunities pursued through new companies breached fiduciary duties, whether termination of the joint venture affected unfair prejudice, whether a share purchase offer provided a clean break, whether unequal salaries caused unfair prejudice, and whether the companies’ financial position had been properly assessed.

Appeal allowed in part. Grounds 4 and 5 were dismissed. No order was required on ground 3 because the High Court’s conclusion concerning the share purchase offer related only to the unappealed exclusion allegation.

1. The Court applied the profit and conflict rules discussed in Recovery Partners GP Ltd v Rukhadze [2025] UKSC 10. A fiduciary must account for profits sufficiently connected with the fiduciary relationship. It is no answer that the company could not have taken the opportunity, that it was insolvent, or that the director would have made the profit in any event. The statutory conflict duty in section 175 of the Companies Act 2006 reflects that position.
2. The termination of the joint venture did not terminate the director’s duties to the companies. In an insolvent or borderline-insolvent company, the interests of creditors remain relevant and the shareholders cannot authorise conduct which breaches the director’s duties. Termination was therefore no defence to the companies’ claim for an account.
3. Termination did, however, affect the unfair-prejudice analysis. A participant who withdrew funding and refused further cooperation could not generally complain when the other pursued genuinely future projects which would previously have fallen within the joint venture’s scope. The Albany Road project fell within that category. Holton Road was different: the property had been acquired by the group and the development opportunity had matured before termination. It belonged to the company and, if profitable, failure to account could in principle cause unfair prejudice.
4. Financial prejudice depended on the outstanding factual questions. There would be no unfair prejudice if the profits were no more than the director’s loan balance, or if the companies remained insolvent even after receiving the profits. Following Re Tobian Properties Ltd [2012] EWCA Civ 998, the court directed an initial hearing on whether there was a real prospect of establishing profits, excess over the loan balance, and an increase in the value of the Petitioners’ shares. Only if that threshold was met should a full hearing take place.
5. The unequal salary claim failed because the increased payments followed the breakdown, the Petitioners ceased funding and working in the business, and the payments were not excessive. The challenge to the factual profitability findings also failed: the findings were not plainly wrong, and the Petitioners could not reopen rejected pre-breakdown misappropriation allegations through a collateral challenge to the Respondents’ wealth.

• Court of Appeal (Civil Division): appeal from the order below allowed in part, with a hearing directed on the remaining real-prospect issue: [2026] EWCA Civ 719.
• High Court of Justice, Business and Property Courts in Cardiff: petition under section 994 of the Companies Act 2006 dismissed by HHJ Jarman KC: [2025] EWHC 949 (Ch).