Key changes regarding Conflict of Interest for Directors under the Companies Act 2006

The Companies 2006 Act divides the duty of directors to declare their interests in transactions and arrangements into two provisions:

• Section 177 relates specifically to directors declaring their interests in transactions or arrangements which are proposed but have not yet been entered into by the company.
• Section 182 deals with declaration of interests in relation to existing transactions or arrangements that the company has already entered into.

In addition to this separation of the duty to declare interests, key changes under the Companies Act 2006 are that:-

• The declaration must be of both the nature and extent of the director's direct or indirect interest. (Under the 1985 Act the duty was to declare only the nature of the interest).
• There is a new updating requirement, under which a further declaration must be made if an earlier declaration proves to be, or becomes inaccurate or incomplete.
• There is no need to make a declaration of interest if the interest cannot reasonably be regarded as likely to give rise to a conflict of interest. (Under the 1985 Act all interests have to be declared, no matter how immaterial.)
• As disclosure of a director's interest is to be made to the other directors, no disclosure is required where a private company has only one director.
• There is also no need to disclose anything the other directors already know about or ought reasonably to have known.
• A declaration of an interest in an existing transaction or arrangement must be made as soon as reasonably practicable. (Under the 1985 Act such an interest only has to be declared at the first board meeting held after the director becomes so interested.)

Some of these provisions came into effect in 2007 but the full range of provisions came into effect on 1st October 2008. With regard to existing transactions company directors can become guilty of criminal offences if they have not or do not declare the conflict of interest. You should note that the director does not need to be a party to the transaction with the company in order for a declaration to be required. For example, where the director's spouse enters into a transaction with the company that may (but need not necessarily) give rise to an indirect interest on the part of the director in that transaction.

The rules are comprehensive and complex. If you would like further information please contact us on 01206 835230 or email commerciallaw@fjg.co.uk . These provisions should provoke companies to take another look at their articles of association which may need revising to permit certain transactions notwithstanding a conflict.