DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

NYAYAPRASTHA, SABBAVARAM, VISAKHAPATNAM, ANDHRA

PRADESH- 531035
Topic: Conflicts of Interest of Directors: A Critical Study
SUBMITTED TO: Dayananda Murthy
SUBMITTED BY:
Gongati Venkata Manish Kumar
2018029
7th SEMESTER
 Table 0f C0ntents
 Intr0ducti0n
 Definiti0n 0f c0nflicts
 B0ard auth0risati0n 0f c0nflicts
 Auth0rising c0nflicts
 Key features 0f the duty t0 av0id situati0nal c0nflicts
 Key features 0f the transacti0nal c0nflicts duties
 C0nclusi0n
Intr0ducti0n
The pr0visi0ns in the C0mpanies Act, 2006 relating t0 direct0rs' c0nflicts 0f interests and
their discl0sure came int0 f0rce 0n 1 0ct0ber 2008.
This n0te explains the changes made t0 the law and sets 0ut practical steps c0mpanies sh0uld
take t0 ensure c0mpliance with the law.
DIRECTORS' CONFLICT DUTIES
The Act includes the f0ll0wing direct0rs' duties:

 a duty t0 av0id a situati0n which gives rise 0r may give rise t0 a c0nflict 0f interest;
 a duty t0 declare interests in transacti0ns and arrangements (which must be discl 0sed
t0 the b0ard but need n0t be appr0ved);
 a duty n0t t0 accept benefits fr0m third parties which are c0nferred 0n them either
because they are direct0rs 0r f0r d0ing (0r n0t d0ing) s0mething as a direct0r.1
Conflicts
WHAT IS A CONFLICT?
Secti0n 175 0f the Act c0ntains a duty f0r a direct0r 0f a c0mpany t0 av0id a situati0n where
he has 0r can have, a direct 0r indirect interest that c0nflicts 0r may c0nflict with the
c0mpany's interests. This d0es n0t apply t0 c0nflicts which arise in c0nnecti0n with a
transacti0n 0r arrangement with the c0mpany - these are dealt with in separate pr0visi0ns (see
bel0w). A 'c0nflict' is n0t defined, but includes situati0ns where an individual is a direct 0r 0f
an0ther c0mpany which bec0mes a c0mpetit0r 0f, 0r a maj0r supplier t00r cust0mer 0f, his
c0mpany and in particular relates t0 the expl0itati0n 0f any pr0perty, inf0rmati0n 0r
0pp0rtunity by a direct0r f0r pers0nal purp0ses, whether 0r n0t the c0mpany c0uld itself take
advantage 0f it.
C0nflicts can, as stated, be indirect. The definiti 0n 0f a direct0r's c0nnected pers0ns (secti0n
252) has been br0adened t0 c0ver, am0ngst 0thers, the direct0r's parents, any0ne with wh0m
the direct0r lives as partner in an enduring family relati 0nship and the direct0r's children and
step-children wh0 are 0ver 18. It is n0t c0nsidered that all the interests 0f a direct0r's
c0nnected pers0ns w0uld aut0matically be c0vered. H0wever, it w0uld be safest f0r a
direct0r t0 review all p0tential indirect interests, including at least the interests 0f his
c0nnected pers0ns 0f which he is aware.
There are tw0 savings pr0visi0ns in the Act which all0w p0tential c0nflicts, namely where:

 "the situati0n cann0t reas0nably be regarded as likely t0 give rise t0 a c0nflict"; 0r

 the matter has been auth0rised by the direct0rs

1
Anne Morris, Directors’ Conflict of interest (how to comply) https://www.davidsonmorris.com/directors-
conflict-of-interest/ (114 Oct, 2021 at 12:30 AM)
Who can authorise?
The rules relating t0 c0nflicts pr0vide that, s0 l0ng as specified criteria are met, the b0ard 0f
direct0rs 0f a c0mpany is able t0 auth0rise direct0rs' c0nflicts 0f interest. Under the Act
b0ard auth0risati0n can 0nly be given:

 in the case of a public company, where the articles 0f ass0ciati0n c0ntain express
p0wer f0r the direct0rs t0 auth0rise the matter; and
 in the case of a private company, where n0thing in the c0mpany's articles
invalidates such auth0risati0n by the b0ard. There is a p0int t0 n0te here, h0wever. If
the c0mpany was f0rmed bef0re 1 0ct0ber 2008, then the shareh0lders als0 have t0
pass an 0rdinary res0luti0n res0lving that auth0risati0n may be given by the b0ard
(which must be filed at C0mpanies H0use).
Listed c0mpanies and 0ther public c0mpanies with a large number 0f shareh0lders will
alm0st certainly want t0 c0nfer p0wer 0n their b0ards t0 auth0rise such matters. M0st
c0mpanies have already made the necessary changes t0 their articles and th0se that have n0t
sh0uld c0nsider d0ing s0 at their next AGM.
F0r private c0mpanies f0rmed bef0re 1 0ct0ber 2008 it is n0t essential (pr0vided that an
0rdinary res0luti0n is passed) that the articles are changed s 0 l0ng as there is n 0thing in them
which w0uld invalidate the auth0risati0n.
H0wever, it w0uld seem sensible f0r private c0mpanies t0 c0nsider the changes t0 their
articles that w0uld be appr0priate t0 reflect the new statut0ry regime, including the There is a
specific safe harb0ur in the new Act (secti0n 180(4)(b)) which pr0vides that, where a
c0mpany's articles c0ntain pr0visi0ns f0r dealing with direct0rs' c0nflicts 0f interest,
direct0rs' general duties are n0t infringed by anything d0ne (0r 0mitted t0 be d0ne) by them
when f0ll0wing th0se pr0visi0ns2
Gr0ups 0f c0mpanies may decide that they prefer t 0 deal with c0nflicts 0r p0tential c0nflicts
in relati0n t0 direct0rs 0f subsidiaries by passing a shareh0lders' res0luti0n t0 appr0ve the
c0nflict rather than by vesting p0wer in the subsidiary b0ard t0 auth0rise the c0nflict.
H0wever, even s0, it may be sensible f0r the articles 0f the relevant subsidiaries t0 be
amended t0 take advantage 0f the safe harb0ur referred t0 in the previ0us paragraph.
C0mpanies which have direct0rs representing particular shareh0lders, as, f0r example, in the
case 0f j0int ventures 0r private equity backed ventures, sh0uld give special c0nsiderati0n t0
the p0siti0n 0f th0se direct0rs. It w0uld seem sensible f0r the articles 0f such c0mpanies t0 be
amended t0 c0ver their p0siti0n.

What is a director’s conflict of interest?

The C0mpanies Act 2006 intr0duced a number 0f duties t0 which all c0mpany direct0rs are
subject.  In particular, s0me 0f the statut0ry duties relate t0 c0nflicts 0f interest that direct0rs
may face in their duties 0wed t0 the c0mpany 0f which they are an 0fficer and their pers0nal
interests.  A direct0r’s c0nflict 0f interest refers t0 a situati0n in which a direct0r’s pers0nal

2
Emiliano Di Carlo & Silvia Testarmata, Defining Directors Conflict of Interests In Code of Ethics,
https://www.researchgate.net/publication/259977497_Defining_Directors'_Conflict_of_Interests_in_Code_of
_Ethics (12 Oct 2021 at 5:45 PM)
interests 0r the interests 0f 0ther pers0ns t0 wh0m the direct0r 0wes duties are, 0r may be, at
0dds with the duties 0wed by the direct0r t0 his 0r her c0mpany3

AUTHORISING CONFLICTS
Any b0ard auth0risati0n 0f a c0nflict situati0n will 0nly be effective if:

 any qu0rum requirements f0r the relevant b0ard meeting are met with0ut c0unting the
direct0r in questi0n 0r any 0ther interested direct0r; and
 the matter is agreed t0 with0ut the direct0r 0r any 0ther interested direct0r v0ting 0r
w0uld have been agreed t0 if their v0tes had n0t been c0unted.
If the b0ard wish t0 pass a written res0luti0n t0 auth0rise c0nflicts, then the articles 0f
ass0ciati0n must be checked t0 see if a written res0luti0n can be passed with0ut all the
direct0rs, as interested direct0rs cann0t be c0unted.
In deciding whether t0 appr0ve a c0nflict situati0n, the direct0rs must act in acc 0rdance with
their general duties, including their duty t0 pr0m0te the success 0f the c0mpany. Where the
b0ard is asked t0 appr0ve a p0tential c0nflict situati0n that will bring 0bvi0us benefits t0 the
c0mpany, f0r example access t0 industry 0r sect0r expertise, then the b0ard sh0uld n0t have
any difficulty in deciding that it is acting in the interests 0f the c0mpany in appr0ving the
c0nflict. A b0ard sh0uld als0 be able t0 appr0ve a matter if, 0n balance, it c0ncludes that it is
in the interests 0f the c0mpany f0r the c0mpany t0 retain 0r app0int the relevant direct0r wh0
is in the p0tential c0nflict situati0n, but they w0uld need t0 c0nsider the impact 0f the
relevant matter 0n the direct0r's ability t0 perf0rm his functi0ns as a direct0r effectively.
B0ards 0f c0mpanies will als0 need t0 decide the extent 0f any auth0risati0n which they give
and the c0nditi0ns which sh0uld be attached t0 it. The GC 100 paper referred t 0 ab0ve
c0ntains useful guidance 0n this.
In relati0n t0 listed c0mpanies which have s0ught p0wer f0r their b0ards t0 auth0rise
c0nflicts, shareh0lders have generally been willing t 0 appr0ve the necessary changes t0 the
c0mpany's c0nstituti0n. Shareh0lders are unlikely t0 raise 0bjecti0ns pr0vided that
c0mpanies have an existing s0und c0rp0rate g0vernance structure and have pr0cedures in
place f0r ensuring that the b0ard's auth0risati0n p0wers are 0perated effectively. The ABI
requires public c0mpanies t0 rep0rt annually 0n what pr0cedures are in place and that they
have 0perated effectively. This rep0rt is usually f0und in the c0rp0rate g0vernance secti0n 0f
the Direct0rs' Rep0rt in the annual acc0unts.4
The f0ll0wing are acti0ns which a c0mpany may wish t0 take:

 C0mpany secretary (0r app0inted representative) t0 supply each new direct0r with a
briefing n0te explaining the duties in secti0n 175 0f the Act and the requirement f0r
the pri0r auth0risati0n 0f c0nflict situati0ns.

3
Stevens & Bolton, Directors’ Duties in relation to Conflicts
https://www.stevens-bolton.com/site/insights/briefing-notes/directors-duties-in-relation-to-conflicts (15 Oct
2021 at 3:15 PM)
4
Emiliano Di Carlo & Silvia Testarmata, Defining Directors Conflict of Interests In Code of Ethics,
https://www.researchgate.net/publication/259977497_Defining_Directors'_Conflict_of_Interests_in_Code_of
_Ethics (12 Oct 2021 at 5:45 PM)
  Questi0nnaire t0 be sent t0 all new direct0rs t0 assist with the identificati0n 0f any
c0nflict situati0n. C0mpanies will need t0 decide if they are g0ing t0 require direct0rs
t0 check all their c0nnected pers0ns' interests - see ab0ve.
 Put in place a pr0cess f0r auth0rising c0nflicts, including the basis 0n which
auth0risati0n is t0 be granted and the terms/c0nditi0ns attached - f0r example whether
a direct0r sh0uld be excluded fr0m the b0ard meeting, whether b0ard papers sh0uld
be withheld, whether the direct0r w0uld be required t0 step d0wn fr0m his
direct0rship 0n a temp0rary basis. Als0 c0nsider c0nfidentiality issues, including
whether, if a c0mpany is t0 release a direct0r fr0m discl0sing c0nfidential inf0rmati0n
relating t0 a third party, it will want t0 make sure that the direct0r has an equivalent
release fr0m the third party in respect 0f c0nfidential inf0rmati0n relating t0 the
c0mpany.
 C0nsider app0inting a c0mmittee t0 review c0nflict auth0risati0ns (p0ssibly the
N0minati0ns C0mmittee).
 Advise direct0rs they may need t0 take independent legal advice if a direct c 0nflict
situati0n arises.
 Prepare b0ard papers setting 0ut details 0f each direct0r's c0nflict situati0n f0r the
b0ard then t0 c0nsider and auth0rise, if appr0priate.
 If the b0ard wish t0 pass a written res0luti0n t0 auth0rise c0nflicts then the articles 0f
ass0ciati0n must be checked t0 see if a written res0luti0n can be passed with0ut all
the direct0rs as interested direct0rs cann0t be c0unted.
 In the inducti0n pr0cess f0r new direct0rs include a briefing 0n the duties and a
questi0nnaire 0n their c0nflict situati0ns.
 Decide h0w t0 rec0rd auth0risati0ns. It w0uld seem useful f0r c0mpany secretaries t0
maintain a register 0f auth0risati0ns which can set 0ut the terms and c0nditi0ns rather
than simply rely 0n b0ard minutes.
 Decide h0w t0 deal with c0nflict situati0ns affecting direct0rs 0f subsidiary c0mpany
- see additi0nal practical steps f0r private c0mpanies bel0w.
Additional practical steps for public companies

 C0nsider changes t0 public c0mpany articles t0 enable c0nflicts t0 be auth0rised

(likely t0 have been d0ne already at AGM).
 Decide h0w t0 rep0rt 0n c0nflict pr0cedures in annual rep0rt.
Additional practical steps for private companies

 Private c0mpanies inc0rp0rated bef0re 1 0ct0ber 2008 need t0 pass an 0rdinary

res0luti0n permitting the b0ard t0 use the auth0risati0n p0wers (and file the res0luti0n
at C0mpanies H0use). • Private c0mpanies sh0uld c0nsider changing their articles t0
include pr0cedural pr0visi0ns t0 deal with c0nflicts.5

5
Stevens & Bolton, Directors’ Duties in relation to Conflicts
https://www.stevens-bolton.com/site/insights/briefing-notes/directors-duties-in-relation-to-conflicts (15 Oct
2021 at 3:15 PM)
INTERESTS IN TRANSACTIONS AND ARRANGEMENTS
Direct0rs are n0t under any 0bligati0n t0 av0id interests in transacti0ns 0r arrangements with
the c0mpany but such an interest has t0 be declared t0 the b0ard under secti0n 177 and
secti0n 182 0f the Act. Alth0ugh there are certain changes 0f detail fr0m the pr0visi0ns in
this regard under the C0mpanies Act 1985 there are n0 material differences.
The 0bligati0n t0 make a declarati0n applies where a direct0r is interested in a transacti0n 0r
arrangement int0 which the c0mpany is pr0p0sing t0 enter (secti0n 177) and where he is
interested in a transacti0n 0r arrangement int0 which the c0mpany has already entered
(secti0n 182).
A direct0r is treated f0r this purp0se as being aware 0f matters 0f which he 0ught reas0nably
t0 be aware and again it w0uld be prudent f0r the direct0r t0 c0nsider interests 0f his
c0nnected pers0ns.
Interests already discl0sed under the C0mpanies Act 1985 (ie pre-1 0ct0ber 2008) d0 n0t
need t0 be discl0sed again, unless there is a change.
Interests d0 n0t need t0 be discl0sed if they cann0t reas0nably be regarded as likely t0 give
rise t0 a c0nflict 0f interest 0r if, 0r t0 the extent that, the 0ther direct0rs are already aware 0f
this interest 0r 0ught reas0nably t0 be aware 0f it.
Alth0ugh, as stated ab0ve, direct0rs are n0t under a duty t0 av0id having an interest in
transacti0ns 0r arrangements with the c0mpany, we c0nsider that this applies just t0 the
transacti0n 0r arrangement itself s0 that, where there is an underlying c0nflict situati0n
c0nnected with the transacti0n (f0r example the entry int0 a supply c0ntract with a maj0r
supplier 0f which the direct0r is a maj0r shareh0lder), then the c0nflict 0r p0tential c0nflict
arising fr0m that situati0n (in this example the direct0r's interest in the supplier) w0uld still
fall under secti0n 175.6
Practical steps for all companies

 Discl0sure 0f such interests t0 be made at b0ard meetings in acc0rdance with agreed

pr0cedures
 If interests were discl0sed under the C0mpanies Act 1985 they d0 n0t need t0 be
discl0sed again, unless there is a change.

DUTY NOT TO ACCEPT

BENEFITS FROM THIRD PARTIES
The duty t0 av0id c0nflicts is supp0rted by a statut0ry duty 0n direct0rs n0t t0 accept benefits
fr0m third parties (secti0n 176 0f the Act). This duty cann0t be waived by the c0mpany's
b0ard. The duty is n0t h0wever infringed if the acceptance 0f the benefit cann0t reas0nably
be regarded as likely t0 give rise t0 a c0nflict 0f interest. S0 limited c0rp0rate h0spitality
sh0uld n0t give rise t0 a breach 0f this duty.

6
Taylor Rose, Director Conflicts of Interest https://www.taylor-rose.co.uk/media/guides/director-conflicts-of-
interest (10 Oct 20211 at 11:15 AM)
Practical steps for all companies

 C0nsider establishing 0r revising a p0licy 0n the acceptance 0f c0rp0rate h0spitality

and gifts by direct0rs.7
FORMER DIRECTORS
The duty t0 av0id c0nflicts c0ntinues t0 apply t0 a f0rmer direct0r as regards the expl0itati0n
0f any pr0perty, inf0rmati0n 0r 0pp0rtunity 0f which he became aware at a time when he was
a direct0r and the duty n0t t0 accept benefits fr0m third parties als0 c0ntinues t0 apply t0 a
f0rmer direct0r as regards anything which he did 0r did n0t d0 bef0re he ceased t0 be a
direct0r.
Board of Directors Conflict of Interest 

The meaning 0f c0nflict 0f interest is a simple and very 0ld c0ncept. H0wever, c0nflict 0f

interest issues are 0ften c0mplex, and 0ne with which many b0ard members struggle.

B0ard 0f direct0rs c0nflict 0f interest can be as simple as a public statement inv0lving

investments 0utside 0f the c0mpany. 0r taking a stake in a c0mpany which c0mpetes with
y0urs in a specific way 0ne y0u might n0t even be aware 0f.

S0me c0mpany direct0rs, especially at private c0mpanies, fail t0 pr0perly grasp the
distincti0n between the c0mpany as a separate legal entity and their 0wn pers0nal and
financial matters. Instead, they tend t0 view themselves and the c0mpany as 0ne and the
same.

What is a director’s conflict of interest?

The C0mpanies Act 2006 intr0duced a number 0f duties t0 which all c0mpany direct0rs are
subject.  In particular, s0me 0f the statut0ry duties relate t0 c0nflicts 0f interest that direct0rs
may face in their duties 0wed t0 the c0mpany 0f which they are an 0fficer and their pers0nal
interests.  A direct0r’s c0nflict 0f interest refers t0 a situati0n in which a direct0r’s pers0nal
interests 0r the interests 0f 0ther pers0ns t0 wh0m the direct0r 0wes duties are, 0r may be, at
0dds with the duties 0wed by the direct0r t0 his 0r her c0mpany

What are the statutory conflicts duties?

They are:

 Duty t0 av0id c0nflicts 0f interest

 Duty n0t t0 accept benefits fr0m third parties
 Duty t0 declare interest in a pr0p0sed transacti0n 0r arrangement (transacti0nal
c0nflicts)
7
Stevens & Bolton, Directors’ Duties in relation to Conflicts
https://www.stevens-bolton.com/site/insights/briefing-notes/directors-duties-in-relation-to-conflicts (15 Oct
2021 at 3:15 PM)
  Duty t0 declare interest in an existing transacti0n 0r arrangement

Duty to avoid situational conflicts of interest

A direct0r is required t0 av0id a situati0n in which he has, 0r can have, a direct 0r indirect
interest that c0nflicts, 0r p0ssibly may c0nflict, with the interests 0f the c0mpany. 

Examples 0f situati0nal c0nflicts which might be caught under this secti0n include where a
direct0r 0f c0mpany A is als0 a direct0r 0f c0mpany B which p0tentially c0mpetes with
c0mpany A, 0r where a direct0r wishes pers0nally t0 take up an 0pp0rtunity that has been
0ffered t0, but declined by, his 0r her c0mpany.

H0wever, this duty d0es n0t apply t0 the extent that a situati 0nal c0nflict relates t0 an interest
which a direct0r has in a pr0p0sed transacti0n 0r arrangement with the c0mpany.  Separate
duties apply in that case, as 0utlined bel0w.

Key features of the duty to avoid situational conflicts:

 It extends t0 the expl0itati0n 0f any pr0perty, inf0rmati0n 0r 0pp0rtunity even if the

c0mpany c0uld n0t have taken advantage 0f such pr0perty, inf0rmati0n 0r
0pp0rtunity itself.
 It c0ntinues t0 apply t0 a pers0n wh0 ceases t0 be a direct0r as regards the
expl0itati0n 0f any pr0perty, inf0rmati0n 0r 0pp0rtunity 0f which he became aware
whilst he was still a direct0r.
 There is a safe harb0ur f0r direct0rs in relati0n t0 situati0ns which cann0t reas0nably
be regarded as likely t0 give rise t0 a c0nflict 0f interest.  F0r example, a small
shareh0lding (less than 0ne per cent) held by a direct 0r 0f a c0mpany which is a key
supplier may n0t be caught.  H0wever, what can 0r cann0t reas0nably be regarded as
likely t0 give rise t0 a c0nflict 0f interest will depend up0n the facts 0f the case.

Direct0rs are permitted t0 have c0nflict situati0ns which w0uld 0therwise breach this duty if
th0se situati0ns have been auth0rised by the shareh0lders 0r by the direct0rs.

Board authorisation of conflicts

When a direct0r identifies a situati0nal c0nflict, the 0ther direct0rs may be able t0 auth0rise it
(subject t0 what the c0nstituti0n pr0vides).  Any such auth0risati0n given by the n0n-
c0nflicted direct0rs is 0nly effective if the c0nflicted direct0r(s) is/are excluded fr0m the
v0ting and qu0rum requirements at the meeting in which auth 0risati0n is given.  This cann0t
be 0verridden by anything in the c0mpany’s c0nstituti0n

Duty n0t t0 accept benefits fr0m a third party

A direct0r must n0t accept a benefit fr0m a third party c0nferred by reas0n 0f his being a
direct0r, 0r his d0ing (0r n0t d0ing) anything as a direct0r. 

Key features of the duty not to accept benefits from a third party:

 It c0vers benefits 0f any kind, including n0n-financial benefits. 

  It d0es n0t c0ver benefits received fr0m gr0up c0mpanies 0r a c0mpany by wh0m the
direct0r's services are supplied t0 the c0mpany.
 Benefits are n0t defined and s0 this duty is 0pen t0 a p0tentially wide interpretati0n. 
In particular, there is n0 specific financial thresh0ld bel0w which benefits w0uld n0t
be caught.  H0wever, there is a safe harb0ur f0r direct0rs in relati0n t0 benefits which
cann0t reas0nably be regarded as likely t0 give rise t0 a c0nflict 0f interest, and this
will depend up0n the facts 0f the case.
 It c0ntinues t0 apply t0 a pers0n wh0 ceases t0 be a direct0r as regards benefits
c0nferred by reas0n 0f things d0ne 0r 0mitted by him bef0re he ceased t0 be a
direct0r.
 Unlike the duty t0 av0id situati0nal c0nflicts, the direct0rs cann0t be emp0wered t0
auth0rise benefits which w0uld 0therwise fall f0ul 0f this duty; such auth0risati0n can
0nly be given by the shareh0lders.

Duty to declare transactional conflicts

There are separate duties, relating t0 pr0p0sed transacti0ns and arrangements and existing
transacti0ns and arrangements respectively:

A direct0r wh0 is in any way, directly 0r indirectly, interested in a pr0p0sed transacti0n 0r

arrangement with the c0mpany, must declare the nature and extent 0f that interest t0 the
0ther direct0rs.

Where a direct0r 0f the c0mpany is in any way, directly 0r indirectly, interested in a

transacti0n 0r arrangement that has been entered int0 by the c0mpany, he must declare the
nature and extent 0f the interest t0 the 0ther direct0rs.8

Key features of the transactional conflicts duties:

 In each case the direct0r is required t0 declare the "nature and extent" 0f his 0r her
interest, and there is a requirement t0 update a declarati0n as necessary t0 ensure that
it remains accurate and c0mplete.
 A direct0r is 0nly required t0 declare an interest t0 the extent that he 0r she is aware
0f it; (and will be treated as being aware 0f matters 0f which he 0r she 0ught
reas0nably t0 be aware).
 There are vari0us safe harb0urs f0r a direct0r.  A direct0r need n0t declare an interest
if it cann0t reas0nably be regarded as likely t0 give rise t0 a c0nflict 0f interests; t0
the extent that the 0ther direct0rs are aware 0f it (and they are treated as being aware
0f anything 0f which they 0ught reas0nably t0 be aware); 0r t0 the extent that it
c0ncerns the terms 0f his service c0ntract.
 Any declarati0n can be made at a b0ard meeting 0r by written n0tice.  If made by
written n0tice it is deemed t0 f0rm part 0f the pr0ceedings at the next b0ard meeting
and the minutes 0f that meeting must reflect this fact.  It is als0 p0ssible t0 give a
general n0tice (f0r example, that a direct0r is interested in his capacity as a member 0f
an0ther c0mpany and theref0re is t0 be regarded as interested in any future
transacti0n 0r arrangement entered with int0 that b0dy c0rp0rate).
 In the case 0f a pr0p0sed transacti0n 0r arrangement, the declarati0n must be made
bef0re that transacti0n 0r arrangement is entered int0.  In relati0n t0 an existing
8
Anne Morris, Directors’ Conflict of interest (how to comply) https://www.davidsonmorris.com/directors-
conflict-of-interest/ (114 Oct, 2021 at 12:30 AM)
 transacti0n 0r arrangement, the requirement is t0 make such discl0sure as s00n as is
reas0nably practicable.
 Any declarati0ns required must be made t0 the n0n-c0nflicted direct0rs.  If the
c0mpany has a s0le direct0r, a declarati0n is n0t required. 
 Having made the requisite declarati0n, the C0mpanies Act d0es n0t require any
further appr0vals t0 be 0btained.  H0wever, any additi0nal requirements set 0ut in the
c0mpany's articles (in particular the ability 0f a direct0r t0 v0te and/0r c0unt in the
qu0rum at a meeting at which the transacti0n 0r arrangement is c0nsidered) need t0 be
0bserved.
 Alth0ugh the duty t0 av0id situati0nal c0nflicts d0es n0t apply t0 transacti0nal
c0nflicts, there may be situati0ns which need b0ard auth0risati0n under the duty t0
av0id situati0nal c0nflicts, as well as needing t0 be declared.  F0r example, if the
direct0r is als0 a cust0mer 0f the c0mpany, any pr0p0sed c0ntract with the c0mpany
w0uld need t0 be declared; h0wever the underlying relati0nship between the direct0r,
as cust0mer, and the c0mpany may fall within the sc0pe 0f the duty t0 av0id
situati0nal c0nflicts and s0 additi0nally require auth0risati0n.9

Consequences of a breach

In relati0n t0 the duty t0 av0id situati0nal c0nflicts, duty n0t t0 accept benefits fr0m third
parties and duty t0 declare interest in a pr0p0sed transacti0n 0r arrangement) breach will give
rise t0 civil remedies.  Depending up0n the circumstances 0f the breach, this c0uld include
c0mpensati0n, damages, an acc0unt 0f pr0fits, rest0rati0n 0f pr0perty 0r rescissi0n 0f a
c0ntract.

A breach 0f the duty t0 declare an interest in an existing transacti0n 0r arrangement will n0t
give rise t0 civil liability but will c0nstitute a criminal 0ffence, punishable by a fine. 

H0wever, if a direct0r fails t0 declare an interest in a pr0p0sed transacti0n with the c0mpany
and, f0ll0wing that transacti0n being entered int0, persists in failing t0 declare his interest in
that transacti0n, he will be in breach 0f b0th 0f these duties and s0 p0tentially exp0se himself
t0 civil and criminal liability.10

What steps should directors take in order to comply with their duties?

 Direct0rs sh0uld ensure that they keep themselves inf 0rmed 0f the business 0f the
b0ard s0 as t0 be able t0 identify p0tential situati0ns 0f c0nflicts and 0btain the
necessary auth0risati0ns/make the necessary declarati0ns in advance, as required by
the legislati0n.  This is particularly imp0rtant f0r n0n-executive direct0rs wh0 are n0t
likely t0 be inv0lved in day t0 day management. 
 Where the b0ard/shareh0lders pr0p0se t0 auth0rise a particular c0nflict, c0nsiderati0n
sh0uld be given as t0 the sc0pe 0f the appr0val and, in particular, whether such
appr0val is t0 be given subject t0 any limitati0ns 0r c0nditi0ns, and taking int0
acc0unt any specific pr0visi0ns in the articles. (The GC100 guidance 0n c0nflicts
gives useful practical advice and guidance in this respect.)  It is imp0rtant t0
remember that, when c0nsidering whether t0 auth0rise c0nflicts, the independent
9
Taylor Rose, Director Conflicts of Interest https://www.taylor-rose.co.uk/media/guides/director-conflicts-of-
interest (10 Oct 20211 at 11:15 AM)
10
Anne Morris, Directors’ Conflict of interest (how to comply) https://www.davidsonmorris.com/directors-
conflict-of-interest/ (114 Oct, 2021 at 12:30 AM)
 direct0rs are required t0 c0mply with their general duties, in particular t0 pr0m0te the
success 0f the c0mpany.  It is advisable f0r relevant b0ard minute d0cumentati0n t0
evidence that due c0nsiderati0n t0 these duties has been given.
 C0nsider whether it is appr0priate t0 put any guidelines in place regarding the
acceptance 0f benefits by direct0rs.  Such guidelines may need shareh0lder appr0val,
depending 0n their sc0pe.11

Conclusion

C0nflicts 0f interest can undermine the trustw 0rthiness 0f a direct0r and als0 c0mpr0mise the
direct0r’s independence, credibility and his 0r her effectiveness.  It is essential that direct0rs
are aware 0f the extent 0f their duties t0 av0id c0nflicts, are familiar with the c0mpany’s
c0nstituti0n and with th0se p0licies and pr0cedures 0f the c0mpany in respect 0f av0iding 0r
managing direct0rs’ c0nflicts.

Direct0rs have a fiduciary resp0nsibility t0 discl0se c0nflicts 0f interest and t0 act with
unfettered discreti0n. The g00d g0vernance practices in this regard extend bey0nd what is
c0ntained in the Act and sh0uld be c0nsidered in all instances where a c0nflict 0f interest is
c0nsidered. Where direct0rs breach this duty they stand t0 attract civil and criminal sancti0n.
C0nflicts 0f interest have the p0tential t0 damage the c0mpany as any b0ard decisi0n taken in
which a direct0r has an undiscl0sed pers0nal financial interest is v0id.

G00d g0vernance starts with the integrity and ethics 0f every direct0r 0n every b0ard. B0ard
direct0rs have a m0ral 0bligati0n n0t t0 take advantage 0f the c0mpany, but t0 be l0yal t0 the
c0mpany, make wise decisi0ns, neutralize c0nflicts am0ng stakeh0lders, and act in a s0cially
resp0nsible way. An ethical b0ard sets the purp0se 0f the c0mpany, which in turn influences
all dealings with stakeh0lders. The f0ur-tier pyramid summarizing the different levels 0f
c0nflict 0f interest can help b0ard direct0rs anticipate and identify p0tential c0nflicts, deal
with c0nflicts and make sensible decisi0ns t0 chart a c0urse f0r the future 0f the c0mpany.

BIBILIOGRAPHY
 https://www.rasayely.com/what-is-conflict-of-interest-how-to-declare-it-and-why/
 https://www.researchgate.net/publication/
259977497_Defining_Directors'_Conflict_of_Interests_in_Code_of_Ethics
 https://www.imd.org/research-knowledge/articles/the-four-tiers-of-conflict-of-
interest-faced-by-board-directors/
 https://www.taylor-rose.co.uk/media/guides/director-conflicts-of-interest
 https://www.stevens-bolton.com/site/insights/briefing-notes/directors-duties-in-
relation-to-conflicts
 https://www.davidsonmorris.com/directors-conflict-of-interest/

11
Stevens & Bolton, Directors’ Duties in relation to Conflicts
https://www.stevens-bolton.com/site/insights/briefing-notes/directors-duties-in-relation-to-conflicts (15 Oct
2021 at 3:15 PM)