Can a director's conflict of interest be authorised by the directors?

Yes it can, subject to the constitution. The position is as follows:

A public company - the directors can only authorise a conflict if the constitution allows them to do so. Silence on the point will not do.

A private company registered before 1st October 2008 - the directors can only authorise a conflict if the constitution allows them to do so. Silence on the point will not do.

A private company registered from 1st October 2008 - the directors can authorise a conflict of interest unless the constitution stops them doing so. Silence on the point is sufficient.

There must be full disclosure and any potentially conflicted directors cannot vote or count towards a quorum.

Directors should think hard before authorising a conflict, if they are able to do so. Just because they can it does not follow that they should. They should keep in mind their duty to act in the way most likely to promote the success of the company for the benefit of its members as a whole.

What is the duty not to accept benefits from third parties?

A director must not accept a benefit from a third party conferred by reason of his being a director for his doing (or not doing) anything as a director. This obviously includes a bribe and it raises fascinating questions about such things as corporate hospitality.

Does it make a difference if the benefit is trivial?

Yes it does. Section 176 includes:

'This duty is not infringed if the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest.'

As with Section 175 (Duty to avoid conflicts of interest) this has to be interpreted and there will be some fascinating cases over the years.

Can I accept a customer's offer to take me to the local cinema at his expense? - probably yes.

Can I accept a customer's offer to take me to the whole of the next Ashes series in Australia, with first class travel, first class hotels and £10,000 for a free bet on the result? Almost certainly not.

Can the directors authorise a director to accept a benefit from a third party?

No.

What is the duty to declare interest in proposed transaction or arrangement?

A director must declare to the board a direct or indirect interest in a proposed transaction or arrangement with the company. This must be done before the company enters into the proposed transaction or arrangement. No disclosure is necessary if the other directors are already aware of the interest or should reasonably be aware of the interest, or if it cannot reasonably be regarded as likely to give rise to a conflict of interest. Disclosure is required if the director is aware of the interest or should reasonably be aware of the interest, but not otherwise. The interest of a person 'connected to a director' must be disclosed by the director.

Is an action for 'Unfair Prejudice' connected with directors' general duties?

No it is not - but as you raise the matter I will deal with it now.

A member can petition the court if the company's affairs are being run, or have been run, in a way that is unfairly prejudicial to the interests of the members generally or part of the members (including himself). The courts' powers to remedy the situation are very wide. They include changing the company's constitution and ordering a member to buy another member's shares at a price fixed by the court.

An example of unfair prejudice could be the actions of a director owning the majority of a company's shares and able to control the composition of the board. If he uses his position to pay himself a salary that is larger than is justified by the work that he does, the interests of the other shareholders are being unfairly prejudiced.

 
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