Companies place trust and confidence in their directors to act in the best interests of the company. The special degree of trust between a company and director creates a fiduciary relationship. The rules of no conflict of interest and no secret profit reassures companies that the directors will act in the best interests of the company.
How To Avoid Breaking The Rules
According to Section 231 of the Companies Act 2014, an opportunity for personal gain should be fully disclosed to the Board of Directors by the director who stands to profit, has a conflicting interest or encounters an opportunity by virtue of his/her position. Disclosure also gives the company a choice to take an opportunity or to authorise the director to take an opportunity for themselves. A Register of Directors’ interests is to be kept to record these types of transactions.
Importance Of Accurate Records
Proper recording of declarations of directors at board meetings is vital to discharge the duty of full disclosure. When taking an opportunity for themselves, directors rely on fully informed authorisation by the board. In turn, the authorisation relies on the accuracy of the minutes to prove the situation was disclosed. Accurate minutes of board meetings can prove whether an opportunity was presented by a director to the board and what decision the board made.
Fully Informed Decision
It is only once the board has been made aware of the opportunity, conflict or chance to make a profit by the director in question that they can make a binding decision to authorise or not. Full disclosure may or may not result in the Board of Directors authorising the directors to exploit it for their own gain, but when the opportunity is not properly disclosed, the director in breach of their fiduciary duties to the company shall be liable to the company and must account to the company for any profits made resulting from the breach and shall reimburse the company for any loss or damage resulting. Disclosing conflicts of interest and opportunities that belong to the company remains a virtue even when the directors and the shareholders are the same people. Professionalism in holding board meetings and taking accurate minutes are central to properly disclosing a conflict of interest.
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