Management and control of companies 301director is treated as being aware of matters of which he ought reasonably to be aware.
Second, in relation to matters which cannot reasonably be regarded as likely to give rise to
a conflict of interest. Third, if the other directors are, or ought reasonably to be, aware of the
interest. So there is no duty to disclose where a company has only one director. Fourth,
if the interest concerns the director’s service contract and this has been approved by the
directors.
Civil consequences of breach of one of the general duties
The remedy for a breach of s. 174 is damages. The other general duties are fiduciary. The
possible remedies for breach of one of the fiduciary duties would include damages, avoid-
ing a contract, the restitution of property, an order to account for profits or an injunction.
The director’s duties will generally be enforceable only by the company. This means by
the board of directors or by the members in general meeting. However, an individual mem-
ber might be able to bring a statutory derivative claimon behalf of the company. Derivative
claims are considered later in this chapter on pp. 310 –11.
Declaration of interest in existing transaction or arrangement
Section 182 sets out a further duty of a director to declare to the other directors any interest
in a transaction with a company. It is not regarded as one of the general duties, as it imposes
criminal liability. If the duty is breached the director will have breached a fiduciary duty
and so the company will be able to avoid the contract.
This duty is similar to the s. 177 duty. However, it applies when the transaction or
arrangement is already existing. If a declaration has been made under s. 177 then a further
declaration does not need to be made under s. 182.
If a company has only one director then s. 182 is generally inapplicable. However, s. 231
applies where a single-member company makes a contract with the sole member if he is
also a director and the contract is not entered into in the ordinary course of the company’s
business. It requires the contract to be in writing, in a written memorandum, or recorded
in the minutes of the next directors’ meeting. Failure to comply with this section is also a
criminal offence but does not invalidate the contract.
Transactions with directors requiring approval of members
The following four types of transactions with directors must be approved by the members:
n Long-term service contracts;
n Substantial property transactions;
n Loans to directors; and
n Payments of over £200 for loss of office.
Failure to gain the members’ approval will have civil consequences but will not cause a
criminal offence to have been committed.
Protecting directors from liability
The company’s constitution might contain provisions which protect directors from liability.
Alternatively, the members might ratify wrongful acts of directors.
Section 180(4)(a) allows the members of the company (not the directors) to authorise any
breach of duty which is yet to be committed, including a conflict of interest. This authorisa-
tion may be given specifically or generally but is subject to common law rules. Section
180(4)(b) provides that the general duty to avoid a conflict of interest is not breached by
anything done or not done by the directors in accordance with the company’s articles.