• Employment
  • April 13, 2022

Directors' conflicts of interest explained

article

If you are the Director of a limited liability company you must comply with the seven Directors’ duties provided for under the Companies Act 2006, namely:

  • s. 171 - Duty to act within powers
  • s. 172 - Duty to promote the success of the company
  • s. 173 - Duty to exercise independent judgment
  • s. 174 - Duty to exercise reasonable care, skill, and diligence
  • s. 175 - Duty to avoid conflicts of interest
  • s. 176 - Duty not to accept benefits from third parties
  • s. 177 - Duty to declare interest in proposed transaction or arrangement

In this article, we will be focusing on the duty to avoid any conflicts of interest.

What is a Directors’ duty concerning conflicts of interest?

Section 175 of the Companies Act 2006 states that company Directors must avoid situations where they could have a direct or indirect conflict between their personal interests and those of the company. Particular care must be taken concerning the exploitation of any property, information, or opportunity and it does not matter whether the company could have taken advantage of the property, information, or opportunity but did not.

 

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When can a Director have a conflict of interest?

The Companies Act conflict of interest section, states that potential conflicts of interest are acceptable if:

  •   the situation cannot reasonably be regarded as likely to give rise to a conflict, or
  •   the matter has been authorised by the directors

Directors can give authorisation so long as the company’s articles of association provide for such a circumstance. When authorising a potential conflict of interest the directors must comply with the other relevant directors’ duties, including promoting the success of the company.

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The penalties for breaching Directors’ duties can be severe and include a fine and/or being banned from acting as a director for several years. If you require legal advice on any matters relating to conflicts of interest or Directors’ duties, click ‘Get started’ below.

 

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Additional resources

In closing

Nothing in this article constitutes legal advice on which you should rely. The article is provided for general information purposes only. Professional legal advice should always be sought before taking any action relating to or relying on the content of this article. Our Platform Terms of Use apply to this article.



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