Directors changes - 2008
Directors of companies must become aware of important changes in the law from the beginning of October or face the possibility of criminal charges, a leading corporate solicitor has warned.
Susheel Gupta of West Midlands law firm, Higgs & Sons, is alerting directors of the significant changes made by the Companies Act 2006 to directors' duties which come into force from 1st October. The Act introduces a statement of duties that will apply to all directors of a company, including shadow directors and even, in certain circumstances, former directors of a company.
Directors will have a statutory duty to avoid situations in which they have, or may have, a direct or indirect interest that conflicts with or may conflict with the company's interest. This duty applies in particular to the exploitation of property, information or opportunity. Susheel cautions that this duty will cover a wide range of circumstances; "Examples when a potential conflict may arise include when a director is also on the board, or is a considerable shareholder, in a supplier, customer or competitor of the company or where a director wants to personally take up an opportunity that has been offered to, but declined by the company. The duty may even be breached where a director is a major shareholder in the same company. Consequently, directors of all companies (other than one-director companies) must now always keep in mind the need to avoid any situation where their personal interests and those of the company may conflict in any way". However, he goes on to reassure that directors need not despair of the increased burden too much; "The duty to avoid conflicts of interest will not be breached if the situation is authorised first by the board, provided the correct procedure has been observed in doing so, although authorisation cannot be given after the conflict has arisen".
Further provisions of the new Act impose a duty on directors to make a declaration to the company should they have any personal interest, directly or indirectly, in any proposed or existing business transaction or arrangement. Susheel explains; "This requirement is very extensive and, importantly, is an ongoing duty, as directors' must declare any changes to their interests". This duty replaces a similar but less demanding requirement under existing law. If directors have already made a declaration of interest under the current law prior to October, then they will not be required to re-declare the same interest. However, if their interest should change at all or the business transaction in question alters in any way then penalties will be faced if a new declaration is not made. If a director does not make a declaration when required to in respect of a proposed arrangement, then civil sanctions will be imposed. However, if a declaration is not made in an existing business arrangement, then the director concerned could expect criminal penalties of a fine.
As a result of the impending changes, Susheel suggests businesses act swiftly to get their houses in order. He advises that "the changes in directors' duties from next month are onerous but companies have the opportunity to act now and make the necessary changes to their constitution, for example by amending the articles of association, to limit the effect that the new legislation might otherwise have to their businesses and to themselves personally in their capacity as directors.
For more information or if you have any concerns or questions regarding the effect of the Companies Act 2006, contact the Corporate team at Higgs & Sons on 01384 342100.
Printer friendly