How should directors approach fiduciary obligations after resignation?

Directors who move on from their companies must remember that their fiduciary obligations are ongoing.

The returned Albanese government has committed to economic reforms to improve productivity and innovation. This is likely to include limiting arrangements that can affect labour mobility, such as non-compete provisions in employment arrangements and post-employment restraints.

But for directors, moving on is much more complicated. This is because a director’s fiduciary duties to the company continue to operate after they resign. One consequence is that retiring directors must not divert commercial opportunities that ought to have gone to their company, to themselves or others, even after their relationship with the company has ended.

The rule was recently examined by the NSW Court of Appeal in He v Sunnya Pty Ltd [2025] NSWCA 78. Two directors — married couple Yanxia Lu and Yinghan He — had formed Sunnya in 2014. Sunnya’s business involved the export and sale of formulated milk powder products from Australia and New Zealand to China under the brand name “Neurio”. The products were produced, manufactured and supplied by New Zealand entities Supermega Market Ltd and Megadairy Ltd. Sunnya owned the Neurio trademark in Australia and New Zealand, but the trademark in China was registered to GABT, a Chinese company 95 per cent owned by He.

In mid-2018, Lu and He sold 51 per cent of Sunnya to an outside investor. They remained as directors and employees of Sunnya and were joined on the board by the investor’s two nominees. Sunnya continued to sell Neurio in China with the cooperation of GABT, as required by the share purchase agreement.

Over time, the relationship between the founders and the investor soured. Late in 2022, the investor called a general meeting to appoint an additional director — giving it effective control of the board. Encouraged by He, GABT terminated its cooperation with Sunnya. Without informing the other directors, Lu and He purported to transfer the Neurio trademarks in Australia and New Zealand from Sunnya to GABT. This plan (referred to as “Plan A”) ultimately failed. Lu and He then resigned from the Sunnya board in November 2022.

A few days later, they arranged for registration of a new trademark — NRIO. The new strategy was to contract Supermega and Megadairy to manufacture formula in New Zealand under the NRIO brand, to be packaged, marketed and sold by GABT in China using both the Neurio and NRIO trademarks. The new co-branding in China was described as “new” or “upgraded” versions of the established Neurio product lines. This strategy was referred to by the court as “Plan B”. 

In about late March or early April 2023, the NRIO trademark began to appear on Neurio-branded products in China. GABT’s website,  which it described as the “Official website of the Australian brand Neurio” publicised the “upgrade” of the Neurio trademark to include the NRIO trademark.

The ties that bind

Many of the steps taken by Lu and He prior to their resignation from the board breached their duties as directors of Sunnya. But the question on appeal was whether they had also breached their duties by executing Plan B from November 2022 onwards.

Directors’ fiduciary duties — sometimes described as the “no profit and no conflict” rules — mean they cannot use their position to their own advantage. This precludes a director or other officer from exploiting a commercial opportunity that comes their way because of their involvement with the company.

Courts have described this as “a strict ethic” that “disqualifies a director or senior officer from usurping for himself or diverting to another person or company with whom or with which he is associated a maturing business opportunity which his company is actively pursuing”.

Importantly, the duty continues to apply even if the director resigns. The rule is known as the Canadian Aero principle. It is that a director cannot escape fiduciary obligations by resigning if their resignation was promoted or influenced by a desire to take an opportunity, or where their position in the company — rather than a fresh initiative — led them to it.

In the He case, the court found that He and Lu resigned as directors of Sunnya to distance themselves from the company immediately before embarking on Plan B. Importantly, it held that He and Lu were able to pursue Plan B for GABT, for their ultimate benefit, by reason of their knowledge and relationships gained as directors of Sunnya. This included knowledge of the terms on which Supermega and Megadairy manufactured and supplied Neurio products to Sunnya, their knowledge of the distribution channels through which those products were marketed and sold in China, and their dealings with Sunnya’s distribution partners. Importantly, this was “no fresh initiative in which Mr He and Ms Lu utilised their expertise to launch an entirely new NRIO line of products”.

Even if the company cannot proceed

Another important aspect of the rule is that it applies even if the company itself cannot take up the opportunity.

In He, the former directors argued that, because GABT controlled the Neurio trademark in China, Sunnya could not have continued the business. In the circumstances, they said, there was no opportunity open to Sunnya in relation to the ongoing sale of Neurio goods in China.

The court rejected this argument. It decided that the description of Plan B as merely “involving the exploitation of GABT’s Chinese Neurio trademarks” fundamentally underdescribed what was essentially a continuation of Plan A.

Plan B was not designed to embark on a “fresh initiative” — it was an attempt to exploit the opportunity that had been developed in China by Sunnya in the preceding years.

As Chief Justice Andrew Bell pointed out, “It is well established that there may still be a breach of fiduciary obligations if the party or person to whom those obligations are owed is unable to exploit (or fully exploit) the opportunities in question”. His Honour accepted the proposition that if an opportunity falls within the scope of a director’s fiduciary obligations, the company’s inability to exploit an opportunity is irrelevant in applying the no profit or no conflict rules.

Involvement

There was a further sting in the tail for the other entities caught up in Plan B. Supermega and Megadairy — which ceased supplying Sunnya and contracted instead with GABT — were found to be knowingly concerned in the former directors’ breaches of statutory duties and were knowing recipients or knowing assistants in their breaches of fiduciary duties.

Those companies were ordered to compensate Sunnya and to stop manufacturing or supplying NRIO-branded products or products to be sold in China under the Neurio brand.

The case is an important reminder that when directors exit a company, their obligations of loyalty survive.

This article first appeared under the headline 'Directors' Counsel' in the June 2025 issue of Company Director magazine.