300 Chapter 11Companies (2): Management, control and winding up
(1) A director of a company must avoid a situation in which he has, or can have, a direct
or indirect interest that conflicts, or possibly may conflict, with the interests of the
company.
(2) This applies in particular to the exploitation of any property, information or opport-
unity (and it is immaterial whether the company could take advantage of the property,
information or opportunity).
Section 175(3) provides that this duty does not apply to a conflict of interest which arises in
relation to a transaction or arrangement with the company. This is because s. 177 deals with
this situation.
Section 175(4) provides that this duty is not breached if the conflict has been authorised
by the directors. In a private company such authorisation is allowed if nothing in the con-
stitution prevents it. In a public company the constitution must positively allow for the
authorisation. As regards both public and private companies, s. 175(6) provides that the
director in question does not count towards the quorum of the meeting which gives
authorisation. Nor can that director’s vote count in favour of authorisation.
A person who ceases to be a director continues to be subject to the duty to avoid a conflict
of interest as regards the exploitation of any property, information or opportunity of which
he became aware at a time when he was a director.The duty not to accept benefits from third parties
Section 176(1) provides that:
A director of a company must not accept a benefit from a third party conferred by reason of
(a) his being a director, or
(b) his doing (or not doing) anything as director.
However, s. 176(4) provides that this duty is not breached if the acceptance of the benefit
cannot reasonably be regarded as likely to give rise to a conflict of interest.
Whereas s. 175 is primarily concerned with a director using company property to his
own advantage, s. 176 is concerned with a director receiving a benefit from a person other
than the company. Section 176 will overlap with s. 175 where a director receives a benefit,
such as a bribe, as an inducement to bring about a conflict of interest.
A person who ceases to be a director continues to be subject to the duty not to accept
benefits from third parties as regards things done or omitted by him before he ceased to be
a director.The duty to declare an interest in a proposed transaction or arrangement
Section 177(1) provides that:
If a director of a company is in any way, directly or indirectly, interested in a proposed transaction
or arrangement with the company, he must declare the nature and extent of that interest to the other
directors.
Section 182(1), considered below, requires a director to declare an interest in any existing
transaction with the company. Criminal liability is imposed if the section is not complied with.
Section 177 by contrast is a general duty, imposing civil liability, which requires a director
to declare any interest in a proposedtransaction with the company. If a declaration made
under s. 177 is, or becomes, incomplete or inaccurate a further declaration has to be made.
There are four situations in which a director does not need to declare a conflict of
interest. First, where he is not aware of the interest or transaction in question. However, the