Director Conflicts of Interest UK: Duties & Rules

Overview

A conflict of interest, in a company law sense, is any situation where a director's personal interests, or the interests of someone connected to them, could influence or appear to influence the way they carry out their role. It is not limited to money changing hands.

A conflict can be direct, such as a director owning shares in a company that is bidding for a contract, or indirect, such as a spouse, civil partner, child or business partner standing to benefit from a decision the board is making. The Companies Act 2006 codified the common law fiduciary duties and set out specific requirements at sections 175, 177 and 182, covering situational conflicts, interests in proposed transactions, and interests in existing transactions.

Directors of private companies can usually have conflicts authorised by the other, unconflicted directors, provided the company's articles do not block that route. Getting the paperwork right, including board minutes and a written register of interests, is how boards demonstrate that duties have been discharged properly.

Key steps

1. Spot the conflict early. The duty to avoid conflicts bites the moment a director becomes aware of a situation that could reasonably be seen as competing with the company's interests. Review your outside directorships, shareholdings, family business links and professional relationships regularly, and flag anything that overlaps with the company's activities before it becomes a problem. 2. Declare the nature and extent of the interest. Under sections 177 and 182 of the Companies Act 2006, a director must declare any direct or indirect interest in a proposed or existing transaction with the company. The declaration should be made to the other directors before the transaction is entered into where possible, and must cover the full scope of the interest rather than a vague reference to it. 3. Record the declaration properly. Good practice is to minute the declaration at a board meeting and log it in the company's register of directors' interests. The minutes should show what was declared, by whom, at what stage, and what the board decided. Written declarations circulated to all directors are also valid and should be kept on file with the statutory records. 4. Seek authorisation where required. For situational conflicts under section 175, such as a competing directorship or corporate opportunity, the non-conflicted directors can usually authorise the conflict if the articles allow it. The conflicted director should not count in the quorum or vote on their own authorisation. Any conditions attached, such as exclusion from certain board discussions, should be recorded clearly. 5. Manage the conflict going forward. Authorisation is not a one-off tick-box. The board should keep the position under review, particularly if the conflicted director's role or the company's activities change. Update the register of interests, refresh declarations annually, and make sure the conflicted director is excluded from relevant decisions and information flows where appropriate.

Common questions