Conflicts within the Company?
No, war isn’t breaking out in the boardroom! However, under the Companies Act 2006, which also consolidates earlier company legislation, a new section 175 comes into effect on the 1st October this year which imposes a duty of care on a director to avoid a situation in which he has or can have an interest that either does or could conflict with the interests of the company.
There are many ways a “situational” conflict can arise, which is considered to be different from the conflict which arises when a director is interested in a transaction with the company (section 177 provides that this must be declared to the board of directors before the transaction is entered into in any event).
The “situational” conflict can be saved, though, by the authority of the board of directors which is given in advance to the conflict arising. In order for the board to give authority to any potential conflicts they not only have to comply with the provisions of the Act but also need the power under the Articles of Association of the company to allow them to do this. Hence a lot of companies have been checking in recent months to see if this power is in place and altering their articles at their Annual General Meeting, if need be, to give them this power.
Any company that has more than one member/ director should be doing likewise, as a failure to comply is in danger of causing any arrangement that is in breach of this provision being set aside. If its too late for the AGM then think about an extraodinary general meeting.
Hansell Wilkes & Co