New rules for directors' conflict of interest

News

08 April, 2008

The rules relating to Directors' conflict of interest is a key Companies Act change coming into force this October.

The 'conflict of interest' provisions have been simplified making it easier for directors to now have dealings with third parties when their interests conflict with those of the company. Previously, the shareholders of the company had to give approval to the director entering into the dealings. From October, transactions can be authorised by the non conflicting directors. This will inevitably save companies the time and expense involved in arranging a shareholder meeting.

Another rule coming into force in October is the duty for directors not to accept benefits from third parties.

The 'no-profit' rule as it is commonly known, restricts directors from accepting benefits. For example, a director and his family receive an offer from ABC Contractors to use a villa in Spain for a couple of weeks free of charge; the villa is owned by the managing director of ABC Contractors and they are currently tendering for a contract with their company; this is an area of potential conflict.

The rule covers monetary and non monetary benefits, so corporate hospitality is out too. Unlike the 'conflict of interest' rules, the board of directors are not allowed to authorise that the director can accept the benefit. The Act does however contain a defence. Directors will not be in breach of their duties if accepting the benefit cannot be reasonably regarded as likely to give rise to a conflict. So, the director will have to look at each instance on a case by case basis, in order to assess for himself the potential conflict situation.

We recommend directors keep records of any benefits they receive in case questions are asked later. If directors within your company are offered corporate hospitality then you may want bring in internal company policies that deal with the reporting and accepting of gifts.

Other changes happening in October 2008 include challenging company names and reduced restrictions on financial assistance. You can find out more about how the changes will affect your businesses at the next Forbes Companies Act events being held on 21st May at Stanley House Hotel, Mellor and 5th June at Marriott Hotel, Preston. Click here for further details or to book.

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