Director Duties: Analysis of Conflicts of Interest and Company Law

This report examines the duties of a company director, emphasizing the importance of avoiding conflicts of interest as mandated by Section 175 of the Companies Act 2006. It outlines the core responsibilities of directors, including acting within their powers, promoting company success, exercisin...Read More

Director Duties Avoid
Conflicts

Table of Contents
INTRODUCTION...........................................................................................................................1
Duties of a director of a company................................................................................................1
Duty to avoid conflicts of interest (Section 175 of company act 2006)......................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
A director in the context of avoid conflicts of interest is someone who occupies a position
of trust and is responsible for avoiding situations of conflicts interest with the company
(ANDREW. KEAY, 2016). this study will show some roles of director of the company that
protects the company against lawsuits.
Duties of a director of a company
As per the companies act 2006 section 175 the main duty of directors is to avoid conflicts
of interest. As per this law and amendment in 2008, a director of an organization Wil have a
statutory duty under section 175. To solve all those conflicts and situations in which he/she has
and can have a direct or may be indirect interest that conflicts arise with the interests of the
company. The main duties which are needed to perform by directors of the company is to
determine as well as implement policies and making effective decision. They are also responsible
for preparing as well as filing statutory documents within the company office. Some common
roles of a director of a company under companies act 2006 is described as follows:
Act within power: Director needs to act with the company's constitution with the main aim of
using power for the main purpose which are being given to the director (Taylor and Kong,
2019).
Promote the success: It is also important for the director to act in good faith as they are
responsible for the success of the company. There are some factors which need to be focused
while considering that what is the most likely to promote the success of the company such as:
need to foster an organisation's business relationship with customers and suppliers, to maintain
the company's reputation, to focus on needs of employees of the company etc.
Exercise independent judgement: Exercising independent judgement is other roles for making
efficient decisions but it does not prevent him from acting accordance with the company's
agreement.
Exercise reasonable skills: Director needs to show the same skills and care as like diligent
person. It includes general knowledge of managing company's operations and experience of
performing relevant functions.
In exception, it is also stated that director's basic and actual understanding is not enough
if there is an expectations more from reasonable person of someone in her/his position.
1

Avoid conflicts of interest: It is the main important duty and responsibility of a director of the
company. Director needs to avoid a situation in which he/she is involved directly or may be
indirectly. It is applicable in some cases such as exploitation, damage to any property and
informations regardless with the company could take advantage of it.
In addition, there are some situations in which duty of the director is not infringed such as:
situation in which director cannot reasonably be regarded as likely to give rise to a conflict of
interest. Situation which has been pre-authorized (Nettle, 2017).
Duty to avoid conflicts of interest (Section 175 of company act 2006)
Director of the company is responsible for avoiding occurrence of such situations that
directly or indirectly can create complex or critical situation for the organization. If there is any
kind of conflicts situation occur in the firm that means director is not performing their duties
properly. If director fails to avoid conflicts, then person can face legal issues. Director has to take
such decisions that are beneficial for company and are in favor of organization. But sometimes
director fail to do the same and start using things for personal benefit. This is duty of director
that to look upon the particular situation and find objects. If there is non- disclosure of conflicts
then it can be considered as criminal action and court may take decision against the director.
Conflict of interest is the personal responsibility of director and if individual fail to perform it
well then it would be considered as duty of director. As in the case of Gordon Ramsay, director
had signed pub documents hence he was liable to pay rent of that business which was situated in
London. But the reality was that chef was not knowing about this signature. As legal documents
were prepared in which Ramsay has acquired the pub called York & Albany which was placed
near to the restaurant. When it was happing at that time his father in law was handling all the
activities of restaurants. But his father has used ghost writer machine to pay the pub’s rent. But
as he had become the guarantor hence now legally Ramsay is liable to pay rent of this premises
committed earlier. As ghost machine was used in the restaurant on routine bases hence evidence
of Ramsay was not accepted by justice (du Toit, 2017).
Here section 175 clearly states that if director has made any kind of decision and
consequence take place then director is responsible for the same and individual will have to bear
all the loss and have to repay the liabilities. Here is the case Ramsay was responsible to avoid
uses of that machine or if it was necessary to use then he must be aware why and how this
machine was used. As giving permission to use that machine and having no deal of where his
2

signature was used was the fault of director. That shows that he has given chance to rise that
such conflict situation hence director is completely responsible for the lease amount that needs to
be paid for that pub premises.
This is duty of director that to pre-authorize the conflict interests. Director has to conduct
a board meetings so that such issue can be discussed and individual must clarify that he is not
involved into all these activities related to conflicts. If this is not done, then it would be legal
responsibility of director to bear all the losses related to such conflicts because of his ignorance
of such situation. Hence, appeals of Ramsay was not authorizes legally.
CONCLUSION
From the above study it has been summarized that duties of director of the company
played a vital role in order to prevent the company from any unauthorized actions and lawsuits.
It has also shown about the responsibility of director in conflicts of interest if he made any type
of decision.
3

REFERENCES
Books and Journals
ANDREW. KEAY, L.L.B., 2016. DIRECTORS'DUTIES. JORDAN Publishing Limited.
du Toit, J., 2017. Fiduciary duties towards shareholders?. Without Prejudice. 17(9). pp.8-9.
Nettle, G., 2017. The changing position and duties of company directors. Melb. UL Rev. 41.
p.1402.
Taylor, P. and Kong, C., 2019. Director's duties: staying informed, keeping out of trouble.
Nursing And Residential Care. 21(7). pp.412-414.
4

5

6

7

8