DIRECTOR'S DUTIES

DIRECTOR CONFLICTS OF INTEREST

Whether you are a director facing allegations that you are in breach of your duties or you are a co-director needing experienced solicitor advice on how to respond, legally and practically, to actions of a co-director which you believe constitute a conflict of interest, we can help. Please do get in contact.



The Companies Act 2006 outlines the responsibilities of a Director and in specifically relation to conflicts of interest; it outlines the three general duties a Director must observe. These are :-

What may amount to a conflict of interest can vary from company to company dependent on the individual situation at the time, but generally can be placed into two main categories, conflicts of interest that involve a transaction, and those conflicts of interest that do not.

DIRECTOR CONFLICTS OF INTEREST INVOLVING A TRANSACTION

Surprisingly, a Director is not under a duty to avoid transactions that they may have an interest in, but they must declare the exact nature of the interest to the board where there may be a conflict of interest with the company's interests. A failure to disclose an interest can be considered a breach of duty and can result in the transaction being stopped by the board. 

The duty to disclose can be indirect also, such as where a person connected to the Director is involved such as a family member. It is usually safer for the Director to declare any potential connected persons interests also. Voting Directors are able to impose conditions upon any authorisation given to a director to go ahead.

In general, it is best practise that Directors make their board aware as soon as possible in full detail as to any potential conflicts of interest and interests they have in the transaction.

There are two scenarios covered by the Companies Act regarding a Director conflict of interest, as outlined above, a transaction already entered into and a transaction being entered into.

TRANSACTIONS ALREADY ENTERED INTO

If a Director has failed to recognise a potential conflict but then realise, they have a duty to disclose this interest and any profit or benefits to the company. Directors can reasonably be held accountable for matters which they ‘should have had an awareness of.’ Understandably this can be confusing for all involved and so for example if a ‘non acting Director’ found that another company of which they had a minor interest in had entered in to an agreement, it can be argued that they would not have known about the transaction, nor particularly should have known they have not failed in their duty.

TRANSACTIONS BEING ENTERED INTO

To not declare an interest in a transaction that is being entered into is a criminal offence and can be subject to prosecution. A Director has a responsibility to declare any interest or possible conflict of interest, direct or indirect before the transaction has been concluded.

INDIRECT INTERESTS

Another potential conflict of interest to be taken into account is that of a connected person.

Whilst the Companies Act does not strictly outline that a connected person can be accredited as an interest of a Director in a transaction, there can be the assumption of an indirect interest.

The safest course of action for any Director in this situation would be to declare openly that they are connected with a person relevant to the transaction and therefore could be considered to have an interest.

Directors must also declare any benefits that have been offered by a third party and due to section 176 of the Companies Act, have a duty to decline any benefits; unless it can be reasonably deemed that acceptance of these benefits will not give rise to a conflict of interest.

Please note that this is a basic guide, for more information on directors conflict of interest case law please contact a member of our team.




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