Duty to Avoid Conflicts of Interest – a Reminder for Directors

Whilst the Courts continue to expand the scope for director wrongdoing, the basic principle under Section 175 of the Companies Act 2006 is that a director must not, without the company’s consent, place himself in a position where there is a conflict, or possible conflict, between the duties he owes to the company and either his personal interests or other duties he owes to a third party.

A director must avoid situations in which he has or can have a direct or indirect interest that conflicts with, or may conflict with, the company’s interests. That applies, in particular, to the exploitation of property, information or opportunity, and whether or not the company could take advantage of the property, information or opportunity. Note that, unless prevented by its constitution, a conflict of interest can be authorised by the Board.

Directors are advised to tread with caution and, where in doubt, disclose an interest (or potential interest) to avoid subsequent criticism in the event of fall out between the company’s principals. Naturally, where concerned, seek legal advice!

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