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Company Law Reform Bill [HL]


Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 2 — General duties of directors

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161     

Duty to avoid conflicts of interest

(1)   

A director of a company must avoid a situation in which he has, or can have, a

direct or indirect interest that conflicts, or possibly may conflict, with the

interests of the company.

(2)   

This applies in particular to the exploitation of any property, information or

5

opportunity (and it is immaterial whether the company could take advantage

of the property, information or opportunity).

(3)   

This duty does not apply to a conflict of interest arising in relation to a

transaction or arrangement with the company.

(4)   

This duty is not infringed—

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(a)   

if the situation cannot reasonably be regarded as likely to give rise to a

conflict of interest; or

(b)   

if the matter has been authorised by the directors.

(5)   

Authorisation may be given by the directors—

(a)   

where the company is a private company and nothing in the company’s

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constitution invalidates such authorisation, by the matter being

proposed to and authorised by the directors; or

(b)   

where the company is a public company and its constitution includes

provision enabling the directors to authorise the matter, by the matter

being proposed to and authorised by them in accordance with the

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constitution.

(6)   

The authorisation is effective only if—

(a)   

any requirement as to the quorum at the meeting at which the matter is

considered is met without counting the director in question or any

other interested director, and

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(b)   

the matter was agreed to without their voting or would have been

agreed to if their votes had not been counted.

(7)   

Any reference in this section to a conflict of interest includes a conflict of

interest and duty and a conflict of duties.

162     

Duty not to accept benefits from third parties

30

(1)   

A director of a company must not accept a benefit from a third party conferred

by reason of—

(a)   

his being a director, or

(b)   

his doing (or not doing) anything as director.

(2)   

A “third party” means a person other than the company, an associated body

35

corporate or a person acting on behalf of the company or an associated body

corporate.

(3)   

Benefits received by a director from a person by whom his services (as a

director or otherwise) are provided to the company are not regarded as

conferred by a third party.

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(4)   

This duty is not infringed if the acceptance of the benefit cannot reasonably be

regarded as likely to give rise to a conflict of interest.

(5)   

Any reference in this section to a conflict of interest includes a conflict of

interest and duty and a conflict of duties.

 
 

Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 2 — General duties of directors

72

 

163     

Duty to declare interest in proposed transaction or arrangement

(1)   

If a director of a company is in any way, directly or indirectly, interested in a

proposed transaction or arrangement with the company, he must declare the

nature and extent of that interest to the other directors.

(2)   

The declaration may (but need not) be made—

5

(a)   

at a meeting of the directors, or

(b)   

by notice to the directors in accordance with—

(i)   

section 170 (notice in writing), or

(ii)   

section 171 (general notice).

(3)   

If a declaration of interest under this section proves to be, or becomes,

10

inaccurate or incomplete, a further declaration must be made.

(4)   

Any declaration required by this section must be made before the company

enters into the transaction or arrangement.

(5)   

This section does not require a declaration of an interest of which the director

is not aware or where the director is not aware of the transaction or

15

arrangement in question.

   

For this purpose a director is treated as being aware of matters of which he

ought reasonably to be aware.

(6)   

A director need not declare an interest—

(a)   

if it cannot reasonably be regarded as likely to give rise to a conflict of

20

interest;

(b)   

if, or to the extent that, the other directors are already aware of it (and

for this purpose the other directors are treated as aware of anything of

which they ought reasonably to be aware); or

(c)   

if, or to the extent that, it concerns terms of his service contract that have

25

been or are to be considered—

(i)   

by a meeting of the directors, or

(ii)   

by a committee of the directors appointed for the purpose under

the company’s constitution.

Supplementary provisions

30

164     

Civil consequences of breach of general duties

(1)   

The consequences of breach (or threatened breach) of sections 157 to 163 are the

same as would apply if the corresponding common law rule or equitable

principle applied.

(2)   

The duties in those sections (with the exception of section 160 (duty to exercise

35

reasonable care, skill and diligence)) are, accordingly, enforceable in the same

way as any other fiduciary duty owed to a company by its directors.

165     

Cases within more than one of the general duties

   

Except as otherwise provided, more than one of the general duties may apply

in any given case.

40

 
 

Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 2 — General duties of directors

73

 

166     

Consent, approval or authorisation by members

(1)   

In a case where—

(a)   

section 161 (duty to avoid conflicts of interest) is complied with by

authorisation by the directors, or

(b)   

section 163 (duty to declare interest in proposed transaction or

5

arrangement) is complied with,

   

the transaction or arrangement is not liable to be set aside by virtue of any

common law rule or equitable principle requiring the consent or approval of

the members of the company.

   

This is without prejudice to any enactment, or provision of the company’s

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constitution, requiring such consent or approval.

(2)   

The application of the general duties is not affected by the fact that the case also

falls within Chapter 4 (transactions requiring approval of members), except

that where that Chapter applies and—

(a)   

approval is given under that Chapter, or

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(b)   

the matter is one as to which it is provided that approval is not needed,

   

it is not necessary also to comply with section 161 (duty to avoid conflicts of

interest) or section 162 (duty not to accept benefits from third parties).

(3)   

Compliance with the general duties does not remove the need for approval

under any applicable provision of Chapter 4 (transactions requiring approval

20

of members).

(4)   

The general duties—

(a)   

have effect subject to any rule of law enabling the company to give

authority, specifically or generally, for anything to be done (or omitted)

by the directors, or any of them, that would otherwise be a breach of

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duty, and

(b)   

where the company’s articles contain provisions for dealing with

conflicts of interest, are not infringed by anything done (or omitted) by

the directors, or any of them, in accordance with those provisions.

(5)   

Otherwise, the general duties have effect (except as otherwise provided or the

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context otherwise requires) notwithstanding any enactment or rule of law.

167     

Modification of provisions in relation to charitable companies

(1)   

In their application to a company that is a charity, the provisions of this

Chapter have effect subject to this section.

(2)   

Section 161 (duty to avoid conflicts of interest) has effect as if—

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(a)   

for subsection (3) (which disapplies the duty to avoid conflicts of

interest in the case of a transaction or arrangement with the company)

there were substituted—

“(3)   

This duty does not apply to a conflict of interest arising in

relation to a transaction or arrangement with the company if or

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to the extent that the company’s articles allow that duty to be so

disapplied, which they may do only in relation to descriptions

of transaction or arrangement specified in the company’s

articles.”;

(b)   

for subsection (5) (which specifies how directors of a company may

45

give authority under that section for a transaction or arrangement)

 
 

Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 3 — Declaration of interest in existing transaction or arrangement

74

 

there were substituted—

“(5)   

Authorisation may be given by the directors where the

company’s constitution includes provision enabling them to

authorise the matter, by the matter being proposed to and

authorised by them in accordance with the constitution.”.

5

(3)   

Section 166(2)(b) (which disapplies certain duties under this Chapter in

relation to cases excepted from requirement to obtain approval by members

under Chapter 4) applies only if or to the extent that the company’s articles

allow those duties to be so disapplied, which they may do only in relation to

descriptions of transaction or arrangement specified in the company’s articles.

10

(4)   

After section 26(5) of the Charities Act 1993 (c. 10) (power of Charity

Commission to authorise dealings with charity property etc) insert—

“(5A)   

In the case of a charity that is a company, an order under this section

may authorise an act notwithstanding that it involves the breach of a

duty imposed on a director of the company under Chapter 2 of Part 10

15

of the Company Law Reform Act 2006 (general duties of directors).”.

(5)   

This section does not extend to Scotland or Northern Ireland.

Chapter 3

Declaration of interest in existing transaction or arrangement

168     

Declaration of interest in existing transaction or arrangement

20

(1)   

Where a director of a company is in any way, directly or indirectly, interested

in a transaction or arrangement that has been entered into by the company, he

must declare the nature and extent of the interest to the other directors in

accordance with this section.

   

This section does not apply if or to the extent that the interest has been declared

25

under section 163 (duty to declare interest in proposed transaction or

arrangement).

(2)   

The declaration must be made—

(a)   

at a meeting of the directors, or

(b)   

by notice in writing (see section 170), or

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(c)   

by general notice (see section 171).

(3)   

If a declaration of interest under this section proves to be, or becomes,

inaccurate or incomplete, a further declaration must be made.

(4)   

Any declaration required by this section must be made as soon as is reasonably

practicable.

35

   

Failure to comply with this requirement does not affect the underlying duty to

make the declaration.

(5)   

This section does not require a declaration of an interest of which the director

is not aware or where the director is not aware of the transaction or

arrangement in question.

40

   

For this purpose a director is treated as being aware of matters of which he

ought reasonably to be aware.

(6)   

A director need not declare an interest under this section—

 
 

Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 3 — Declaration of interest in existing transaction or arrangement

75

 

(a)   

if it cannot reasonably be regarded as likely to give rise to a conflict of

interest;

(b)   

if, or to the extent that, the other directors are already aware of it (and

for this purpose the other directors are treated as aware of anything of

which they ought reasonably to be aware); or

5

(c)   

if, or to the extent that, it concerns terms of his service contract that have

been or are to be considered—

(i)   

by a meeting of the directors, or

(ii)   

by a committee of the directors appointed for the purpose under

the company’s constitution.

10

169     

Offence of failure to declare interest

(1)   

A director who fails to comply with the requirements of section 168

(declaration of interest in existing transaction or arrangement) commits an

offence.

(2)   

A person guilty of an offence under this section is liable—

15

(a)   

on conviction on indictment, to a fine;

(b)   

on summary conviction, to a fine not exceeding the statutory

maximum.

170     

Declaration made by notice in writing

(1)   

This section applies to a declaration of interest made by notice in writing.

20

(2)   

The director must send the notice to the other directors.

(3)   

The notice may be sent in hard copy form or, if the recipient has agreed to

receive it in electronic form, in an agreed electronic form.

(4)   

The notice may be sent—

(a)   

by hand or by post, or

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(b)   

if the recipient has agreed to receive it by electronic means, by agreed

electronic means.

(5)   

Where a director declares an interest by notice in writing in accordance with

this section—

(a)   

the making of the declaration is deemed to form part of the proceedings

30

at the next meeting of the directors after the notice is given, and

(b)   

the provisions of section 231 (minutes of meetings of directors) apply as

if the declaration had been made at that meeting.

171     

General notice treated as sufficient declaration

(1)   

General notice in accordance with this section is a sufficient declaration of

35

interest in relation to the matters to which it relates.

(2)   

General notice is notice given to the directors of a company to the effect that the

director—

(a)   

has an interest (as member, officer, employee or otherwise) in a

specified body corporate or firm and is to be regarded as interested in

40

any transaction or arrangement that may, after the date of the notice, be

made with that body corporate or firm, or

 
 

Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 4 — Transactions with directors requiring approval of members

76

 

(b)   

is connected with a specified person (other than a body corporate or

firm) and is to be regarded as interested in any transaction or

arrangement that may, after the date of the notice, be made with that

person.

(3)   

The notice must state the nature and extent of the director’s interest in the body

5

corporate or firm or, as the case may be, the nature of his connection with the

person.

(4)   

General notice is not effective unless—

(a)   

it is given at a meeting of the directors, or

(b)   

the director takes reasonable steps to secure that it is brought up and

10

read at the next meeting of the directors after it is given.

172     

Declaration of interest in case of company with sole director

(1)   

Where a declaration of interest under section 168 (duty to declare interest in

existing transaction or arrangement) is required of a sole director of a company

that is required to have more than one director—

15

(a)   

the declaration must be recorded in writing,

(b)   

the making of the declaration is deemed to form part of the proceedings

at the next meeting of the directors after the notice is given, and

(c)   

the provisions of section 231 (minutes of meetings of directors) apply as

if the declaration had been made at that meeting.

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(2)   

Nothing in this section affects the operation of section 215 (contract with sole

member who is also a director: terms to be set out in writing or recorded in

minutes).

173     

Declaration of interest in existing transaction by shadow director

(1)   

The provisions of this Chapter relating to the duty under section 168 (duty to

25

declare interest in existing transaction or arrangement) apply to a shadow

director as to a director, but with the following adaptations.

(2)   

Subsection (2)(a) of that section (declaration at meeting of directors) does not

apply.

(3)   

In section 171 (general notice treated as sufficient declaration), subsection (4)

30

(notice to be given at or brought up and read at meeting of directors) does not

apply.

(4)   

General notice by a shadow director is not effective unless given by notice in

writing in accordance with section 170.

Chapter 4

35

Transactions with directors requiring approval of members

Service contracts

174     

Directors’ long-term service contracts: requirement of members’ approval

(1)   

This section applies to provision under which the guaranteed term of a

director’s employment—

40

 
 

Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 4 — Transactions with directors requiring approval of members

77

 

(a)   

with the company of which he is a director, or

(b)   

where he is the director of a holding company, within the group

consisting of that company and its subsidiaries,

   

is, or may be, longer than two years.

(2)   

A company may not agree to such provision unless it has been approved—

5

(a)   

by resolution of the members of the company, and

(b)   

in the case of a director of a holding company, by resolution of the

members of that company.

(3)   

The guaranteed term of a director’s employment is—

(a)   

the period (if any) during which the director’s employment—

10

(i)   

is to continue, or may be continued otherwise than at the

instance of the company (whether under the original agreement

or under a new agreement entered into in pursuance of it), and

(ii)   

cannot be terminated by the company by notice, or can be so

terminated only in specified circumstances, or

15

(b)   

in the case of employment terminable by the company by notice, the

period of notice required to be given,

   

or, in the case of employment having a period within paragraph (a) and a

period within paragraph (b), the aggregate of those periods.

(4)   

If more than six months before the end of the guaranteed term of a director’s

20

employment the company enters into a further service contract (otherwise than

in pursuance of a right conferred by or under the original contract on the other

party to it), this section applies as if there were added to the guaranteed term

of the new contract the unexpired period of the guaranteed term of the original

contract.

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(5)   

A resolution approving provision to which this section applies must not be

passed unless a memorandum setting out the proposed contract incorporating

the provision is made available to members—

(a)   

in the case of a written resolution, by being sent or submitted to every

eligible member at or before the time at which the proposed resolution

30

is sent or submitted to him;

(b)   

in the case of a resolution at a meeting, by being made available for

inspection by members of the company both—

(i)   

at the company’s registered office for not less than 15 days

ending with the date of the meeting, and

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(ii)   

at the meeting itself.

(6)   

No approval is required under this section on the part of the members of—

(a)   

a body corporate that is not—

(i)   

a company as defined in section 1 of this Act, or

(ii)   

a body registered under the Companies Acts by virtue of

40

section 694 (bodies not formed under Companies Acts but

authorised to register);

(b)   

a body corporate that is a wholly-owned subsidiary of another body

corporate.

(7)   

In this section “employment” means any employment under a director’s

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service contract.

 
 

 
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