The relevant provisions in the new Companies Act won't come into force until 1 October 2007.  When they do, company directors will find themselves under the obligation not to accept a benefit from a third party,

The legislation makes it clear that directors cannot accept "bribes".  These banned benefits can be financial or non-financial, ranging from stock options to a day in the champagne tent at the golf.  There is no minimum limit on the scale or value of the benefit.

Fortunately for directors, this is not a blanket ban:  there will be no infringement if the acceptance of the benefit cannot be reasonably construed as a conflict of interest.  Therefore, hospitality received as a "thank you" at the end of a transaction or contract is more likely to be justifiable.  Similarly, if the hospitality comes from the director's own company, there can be no conflict of interest, at least, as far as the directors of the host company are concerned.

Finally, if the members of the company have approved the director's receiving of the benefit or hospitality, then the director will not find himself infringing the rules.  This is a higher standard of approval than is necessary for breaches of the general director's duty to avoid conflicts of interest (which requires only the approval of the board) and is therefore more difficult to satisfy, particularly if there are more than a handful of members.

Many companies now have corporate governance policies in place which provide guidance for directors as to how they should act in situations likely to give rise to a conflict of interest with the company.  Directors should ensure that they act in accordance with any such internal rules, as well as the provisions of the new Act.

In short, the new Act does not herald the end of corporate hospitality for directors, but introduces a further note of caution.

Ailsa Mapplebeck is an associate specialising in corporate finance with UK law firm Shepherd and Wedderburn
0141-566 7225

Back to Search