From 1 October 2008 a director must avoid a situation where he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict with the company’s interests. The requirement is very broad and could apply, for example, if a director becomes a director of another company or a trustee of another organisation.
The new Act amends the previous law to permit directors to authorise conflicts and potential conflicts. Shareholders continue to have the power to authorise such conflicts. Private companies can take advantage of this new power provided that nothing in their Articles prevents them from doing so, and in the case of a company incorporated prior to 1 October, they either amend their Articles or pass an ordinary shareholders resolution to empower the directors. Public companies can also take advantage of these provisions, provided they have specific authority in their Articles. However, even if directors do authorise a conflict, the director in question may still fall foul of his obligation to comply with the other statutory directors duties (e.g. duty to promote the success of the company). To avoid the director being in breach, the company should consider including "safe harbour" provisions in its Articles which detail the circumstances where an authorised director will not fall foul of his directors duties in relation to an authorised conflict.
When authorising a conflict only those Directors who have no interest in the matter being considered can take the relevant decision, and in doing so, they must act in a way they consider, in good faith, will be most likely to promote the Company’s success. The Directors will also be able to impose limits or conditions when giving authorisation if they think this is appropriate.
Scott Boyle is a partner specialising in corporate law at leading UK law firm Shepherd and Wedderburn LLP.