Directors Responsibilities
Following further implementation of the new Companies Act 2006, the final three new directors' duties were introduced on 1 October 2008, and it is important that all directors are aware of these.
Duty to Avoid a Conflict of Interest
A director must:
"avoid a situation in which he has, or can have, a direct or indirect interest that conflicts or may possibly conflict with the interests of the company".
There are two exceptions to this:
- Where the matter cannot reasonably be regarded as likely to give rise to a conflict; or
- Where the independent directors on the board have authorised the matter. Where the board authorises the matter the director(s) interested in the matter will not count in the quorum and are not allowed to vote.
Your Articles of Association may require amendment to ensure that independent directors can authorise another director's conflicts of interest. The Articles could also place some limitation on the directors' power to do this.
While you are amending your Articles of Association in respect of conflicts of interest, it may also be a good opportunity to consider updating them in relation to other new provisions of the Companies Act 2006. You may, for example, like to consider the following:
- removing the requirement for the company to hold an Annual General Meeting (if it is a limited company);
- removing the need for the company to have a Company Secretary (bearing in mind the need for the Secretary's duties to continue to be carried out by another person);
- removing the need for directors to retire at 65;
- removing the prohibition on loans to directors, subject to shareholders' approval;
- removing the prohibition on reducing your company's share capital; and
- allowing your company to serve notices on members in electronic form or via your website.
Accepting Benefits
Directors are prohibited from accepting benefits except where the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest.
The benefit must be conferred by reason of a person being a director, or doing or not doing a particular thing as a director.
The board cannot authorise the acceptance of benefits by a director. Any authorisation permitting a director to accept a benefit must be from the shareholders.
As a result of this duty, directors should now be particularly wary of accepting personal gifts, benefits or entertainment and it may be beneficial for your company to draft a new policy dealing with the acceptance of benefits to ensure that directors know what they can and cannot accept and when shareholders' approval should be sort.
Declaration of Interest
Directors must declare to the other directors the nature and extent of any interest, direct or indirect, in a proposed transaction or arrangement with the company.
A director must declare his interest before the company enters into the transaction. This interest is not limited to situations where the director is party to the transaction or arrangement. The declaration can be made either in a meeting of the directors or in writing to the other directors.
If the declaration becomes inaccurate or incomplete at any point, a further declaration must be made by the director. This duty continues after a director ceases to hold office in relation to interests arising during his time as a director. You will need to make sure that you board minutes properly document any declaration of interest by a director.
Further Information
If you require further advice or assistance in relation to any of the matters discussed above, or if you are concerned about any of the new provisions of the Companies Act 2006, please contact:
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