Member Article

This is largely a codification of duties which already existed under previous legislation or the common law. However, the Act does introduce some new duties.

With effect from 1 October 2008, every director of a company now has a statutory duty to avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company (a ‘situational conflict'). If a situational conflict exists, steps can be taken to authorise the conflict to ensure that the director is not in breach of this duty.

The Act now provides a new mechanism for companies to deal with situational conflicts of interest. In certain circumstances this will enable any ‘un-conflicted directors' to authorise a situational conflict instead of the shareholders.

Certain shareholder resolutions and/or amendments to the company's constitution may be required in order to be able to take advantage of this new mechanism – the requirements are different depending upon whether the company is private or public, and whether the company was incorporated before or after this new duty came into force.

In order to ensure compliance with the duties and the procedural requirements, it is important that boards of directors put in place their own procedures for dealing with conflicts.

This new duty is particularly relevant in relation to group companies with common directors and where there is intra-group trading or any group security granted in respect of banking facilities. The new duty may also be relevant if individuals hold multiple directorships across separate corporate groups where there is the potential for a conflict of interest.

This new duty to avoid situational conflicts is in addition to the ongoing director's duty to disclose any interest in an existing or proposed transaction or arrangement with the company.

 

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