Under the Companies Act 2006, directors have a statutory duty to avoid situations where their own interests conflict with the interests of the company. The duty casts a wide net and is therefore relatively easily infringed. However, liability for infringement can be avoided if the matter in question has been authorised in advance by the directors.
Even once a potential conflict has been authorised by the board, the conflicted director is still obliged to abide by his other statutory duties. This has the potential to cause ongoing problems where directors sit on the board of more than one company within a group of companies.
For example, a director may receive information by virtue of his role as a director of Company A that might also be relevant to the business of Company B - of which he is also a director - but it would not be in the interests of Company A for him to disclose that information to Company B. There is clearly potential for a real conflict of interest in such a situation.
The directors of a private company incorporated on or after 1 October 2008 have an automatic power of authorisation unless the Articles of Association contain conflicting provisions, whereas companies incorporated prior to that date will need to either pass an ordinary resolution of the members or amend their articles in order to take advantage of this power.
A company may now also take advantage of the “safe harbour” provision included in section 180(4)(b) of CA 2006 protecting directors from liability if they act in accordance with provisions contained in the Articles of Association. Group companies in particular may wish to consider amendments to their articles in order to take advantage of this new provision, for example to sanction conflicts arising from directors’ involvement in other group companies or to override the duty to disclose confidential information obtained by virtue of another role.
Companies may therefore wish to review, and if necessary amend, their articles to make sure that the provisions dealing with directors’ conflicts of interest are clear, remove any provisions which would prevent the directors from taking advantage of the provisions of the 2006 Act and include such provision for safe harbour.
If you would like any further information about the issues raised in this article please contact Rebecca Gardner or Tanya Shillingford of Goodman Derrick LLP’s corporate team on 0207 404 0606.
This guide is for general information and interest only and should not be relied upon as providing specific legal advice.
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