Rules have extended directors duties to include situations where conflicts of interest might arise in the future
New provisions under the Companies Act 2006 could extend directors duties where there are conflicts of interest, lawyers have warned.
Directors are already obliged not to put themselves in a position where their interests conflict with the interests of their company. As of October 1 that duty has been rephrased to include any situation in which a conflict might arise in the future.
‘That’s made commentators feel the duty is being extended,’ said Danielle Harris, a corporate lawyer with Maclay Murray & Spens.
She suggested the widened duty could lead to more claims of conflict of interest.
‘Companies will have to put procedures in place for directors to alert them to the fact they have a situation that might give rise to a conflict and to get that considered and where appropriate authorised,’ warned Harris.
Until the new law has been tested in court, she advised companies to be cautious and to consider whether approval should be given in a wider variety of situations just to be on the safe side.
“What this means is that companies need to take action to ensure the board has the power in its constitution to approve conflicts of interest.
Danielle Harris, a corporate lawyer with Maclay Murray & Spens
Under the new duty, the way this authority can be obtained has been extended to include approval from the board. Previously companies would need a shareholder resolution to approve any actual conflict of interest.
‘What this means is that companies need to take action to ensure the board has the power in its constitution to approve conflicts of interest and to make sure, if it arises, that authority is given,’ said Harris.
All existing public companies that want to include a provision enabling the board to give authority will need to pass a shareholders resolution to amend their articles, she added.
Harris also pointed out that under the new rules it could be easier for companies to allow a director to remain in a potentially conflicting position if the board can prove that it’s in the interests of the company.
A conflict of interest could arise if, for example, a non executive director of a public company also sits on the board of another company in the same industry.