UK Law and Practice Contributed by: Gareth Sykes, James Palmer, Isobel Hoyle and Hannah Whitney, Herbert Smith Freehills Kramer
Conflicts of Interest Under the Companies Act, directors have a duty to avoid situations in which they have, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. The duty is stated to apply, in par - ticular, to the exploitation of any property, infor - mation or opportunity. A director will therefore need to consider carefully whether an oppor - tunity rightfully belongs to the company before exploiting it personally. There are a number of exceptions to this duty, including where the matter has been authorised by the company’s directors, where the company has given authority to the directors for some - thing to be done or where the articles of associa - tion contain a provision for dealing with conflicts and the directors are acting in accordance with that provision. Directors have three related duties, including the duty not to accept benefits from third parties, the duty to declare any interest in a proposed transaction and the duty to declare an interest in an existing transaction (see 4.6 Legal Duties of Directors/Officers ). These interests would typi - cally be declared at the board meeting authoris - ing the transaction. 4.6 Legal Duties of Directors/Officers The rules governing directors’ duties are set out in the Companies Act. The Companies Act includes a statutory state - ment of the duties a director owes to the com - pany. The statutory directors’ duties are: • to act within the powers conferred by the company’s constitution; • to promote the success of the company for the benefit of the members as a whole;
term). If a director is to be removed before the expiration of their term, the Companies Act sets out a number of protections that must be com - plied with, including that the ordinary resolution cannot be a written resolution and that the direc - tor has the right to be heard by the shareholders at the general meeting. In addition, a company’s articles of association typically set out grounds for removal. 4.5 Rules/Requirements Concerning Independence of Directors Independence There are no requirements at law regarding independence of directors. However, the Gov - ernance Code provides that at least half the members of the board should comprise inde - pendent non-executive directors, determined in accordance with the Governance Code (see 1.3 Corporate Governance Requirements for Com- panies With Publicly Traded Shares for details of the application of the Governance Code). Cir - cumstances which the Governance Code con - siders are likely to impair, or appear to impair, non-executive directors’ independence include whether they: • have been employees of the company or group within the last five years; • have had a material relationship with the company in the last three years; • have close family ties with any of the compa - ny’s advisers, directors or senior employees; • have served on the board of the company for more than nine years; or • represent a significant shareholding. However, a company may, notwithstanding the existence of these circumstances, determine a director to be independent. If they do so, this should be explained in the company’s annual report.
852 CHAMBERS.COM
Powered by FlippingBook