Transactions or arrangements with the company (section 177 and sections 182-187 of the 2006 Act)
The section 175 duty to avoid conflicts of interests does not apply to transactions or arrangements that are with the company. Conflicts arising in these situations must be declared to the other directors in accordance with one of the following provisions:
- section 177 – the duty to declare an interest in a proposed transaction or arrangement with the company; or
- section 182 – the obligation to declare an interest in an existing transaction or arrangement with the company.
Under these provisions a director must declare direct and indirect interests of which he “ought reasonably” to have been aware. As with the duty to avoid conflicts of interests, directors should consider the interests of persons connected with them when deciding whether to make a declaration. A director need not be a party to the transaction for the obligation to apply.
This declaration regime is similar to that contained in section 317 of the Companies Act 1985 (the “1985 Act”) but there are some differences:
- a director need not make a declaration if his interest cannot reasonably be regarded as likely to give rise to a conflict, if the other directors are already aware of it or if it concerns the terms of his service contract that have been or are to be considered at a board meeting;
- the declaration must be made to the “other directors”. This means a sole director of a private company will no longer need to hold a meeting alone and make a declaration to himself;
- the declaration may be made at a board meeting, by written notice or by general notice. Under section 317 of the 1985 Act, a declaration has to be given at a board meeting. A general notice must be given at a board meeting or the director must take reasonable steps to ensure that it is produced at the next board meeting; and
- the notice must state the nature and extent of the director’s interest. Under the 1985 Act it was only necessary to declare the nature of the interest. A director must also make a further declaration if the initial declaration proves to be, or becomes, inaccurate or incomplete.
For more information please contact Helen Goose on 0117 918 1322 or email her at helen_goose@jordans.co.uk.
