Conflict of interests
Sep 11 2008 by Peter McCusker, The Journal
DIRECTORS Conflict of Interests – Are you ready for October 1, 2008? Lee Williamson, senior associate in the Company Commercial team at the Newcastle office of international law firm Eversheds, considers the upcoming changes to the Companies Act and the impact this will have on directors.
What is changing?
From October 1, 2008, all directors have a duty under the Companies Act 2006 to avoid actual or potential conflicts between the duties they owe to a company and either their personal interests or other duties owed to third parties.
As a director how does this affect me?
The new law places a positive onus on you as a director to avoid actual or potential conflict situations. The obligation applies whether or not you are an executive or a non-executive director.
There are a number of situations that could put the interest of a director in potential conflict with the duty owed to a company – examples include where a director is a director of another company that is a competitor of the company in question or where the director represents a shareholder of the company. Ultimately, any actual or potential conflict situation will need to be discussed with the company and appropriate authorisation sought.
How does this affect my company?
It will not be sufficient to simply adopt procedures to manage a conflict situation as is the current practice. In order to prevent individual directors from falling foul of the new legislation, the conflict situation will need to be authorised. The Companies Act 2006 allows boards of directors (but only those directors independent of the conflict) to authorise conflicts of interest, so as to prevent directors from being in breach of their statutory duty.
The board of directors of a private company may authorise a conflict of interest if its constitution contains nothing which would prevent such authorisation. As far as public companies are concerned, the company’s articles must contain express provisions which permit the directors to authorise a conflict. Likewise, for charitable companies, directors may only authorise a conflict if they are expressly permitted by the company’s constitution.
The new law places a positive onus on you as a director
