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Introduction to this document

Directors’ conflict of interest flow chart

Most directors will encounter a conflict of interest, or be in the position of a potential conflict arising, at some point while in office. It is important that directors know what to do in this situation so that their decisions and those of the board remain valid. Use our flow chart to stay on the right track.

Handling the conflict

As the duty to avoid conflicts is so wide, it would make acting as a director impossible in many situations. Therefore, the company can allow its directors to act despite their conflicts, or potential conflicts, as long as they are transparent in disclosing their interests.

Firstly, the Companies Act 2006 requires directors to disclose any interests they have in any of the company’s existing transactions or arrangements, as well as interests in any proposed transactions or arrangements.

However, this may not be enough to enable the relevant director(s) to participate in decisions related to the conflict. You will need to check your company’s articles to check the position. Usually, if the interest is not “material” (that is, significant enough to influence the director), they will be able to participate in any related decision making. However, if there is a chance that the director may be influenced by the conflict, they will usually need the board’s or shareholders’ consent to act.

Bear in mind that it may be appropriate in the circumstances for a director to recuse themself from discussions on the relevant matter to avoid the board’s decisions being challenged in the future. The situation may even call for the director’s resignation (as long as this is done in good faith and not, for example, so they can take advantage of a business opportunity that the company was pursuing for their own benefit). Directors therefore need to consider each set of circumstances carefully, and keep this under review. If in doubt, they should seek professional advice.