Non-Competes: What it means to be "concerned" in a competing business

Spill Bidco Ltd v Wishart, what happened?

Post-share sale, the seller provided loans and business advice to a competitor operating in the UK and Spain.  The buyer argued that this breached the non-compete clause in the sale agreement, which prohibited the seller from being “concerned” in any competing business.

The issue was whether lending and advisory support amounted to being “concerned” in a competitor and whether the clause was enforceable.

The High Court sided with the buyer.  It held that lending money, particularly when combined with other forms of support (such as advice), could indeed constitute being “concerned” in a rival business, depending on the circumstances.  The court applied the restraint of trade test and found the clause enforceable.

Tests considered

To determine whether the non-compete clause was enforceable, the court considered two established legal tests:

1. The “trading society” test.
This test has traditionally been applied in land transactions.  The buyer argued for its application, but the court deemed it inappropriate on the facts involving a share sale.

2. The “restraint of trade” test.
This requires the clause to be no wider than necessary to protect a legitimate business interest (that is, a protectable concern, such as goodwill and customer connections acquired in the transaction).  The court applied this test and found that the clause was enforceable.  Factors supporting enforceability:

• the relative bargaining power of the parties;
• the importance of goodwill in the transaction;
• the geographical scope of the restriction;
• the duration of the restriction; and
• the consideration paid under the agreement.

Enforceability test flow

• Step 1: legitimate interest identified? If no, the clause is unenforceable.  If yes, go to Step 2.
• Step 2: scope, duration, and geography no wider than necessary? If no, the clause is unenforceable.  If yes, go to Step 3.
• Step 3: contextual factors (bargaining power, goodwill, consideration) support reasonableness?  If yes, the clause is enforceable.

Drafting tips

• Balance of power: ensure that both parties have had the opportunity to negotiate terms fairly;
• Geographical scope: align territories to current operations and realistic expansion;
• Duration: set a proportionate duration;
• Consideration: clearly reflect the value of the restriction in the purchase price or other contractual terms;
• Specificity: tailor the clause to the particular risks and nature of the business being sold;
• Define involvement: “being concerned” includes direct or indirect ownership, financing, management, employment, consultancy, advisory services, introductions, or any material support to a competing business;
• Evidence purpose: recitals referencing goodwill and consideration support reasonableness; and
• Carve‑outs and consents: allow passive investment and pre‑cleared exceptions to reduce restraint risk.

Conclusion

Non-compete clauses play a key role in protecting business interests during and after a sale.  However, their enforceability depends on careful drafting and a clear understanding of legal principles.  The Spill Bidco Ltd v Wishart case highlights that courts will look beyond the surface of an activity (such as lending money) to establish whether it constitutes involvement in a competing business.  Enforceability rests on the restraint of trade test, satisfied where the clause protects legitimate interests and is no wider than necessary, considering bargaining power, goodwill, territory, duration, and consideration.  Ultimately, context is key.

Both buyers and sellers should approach these clauses with caution and seek professional advice to ensure their rights and obligations are clearly defined.  Precision, proportionality, and documented context are key to a defensible covenant.

For sellers, it is important to understand that even indirect involvement, such as providing loans or advice, could breach a non-compete clause if it supports a competing business.  Always seek legal advice before engaging in any activity that could be interpreted as “being concerned” in a rival business.

The enforceability of any covenant depends on its specific wording and commercial context.

Contact our Corporate & Commercial team to seek specialist advice before acting on or relying upon any restrictive covenant.