The director’s duty to avoid conflicts of interest is codified in s 175 of the Companies Act 2006, a reformulation of the equitable ‘no-conflict rule’: fiduciaries must not place personal interests in conflict with their duties.
The Scope of Section 175
- Breadth: a director must avoid any situation where they have, or can have, an interest that conflicts, or “possibly may conflict” — meaning, per Lord Upjohn, a “real sensible possibility of conflict”, not a far-fetched one.
- Inclusions: the exploitation of any property, information or opportunity, regardless of whether the company could have taken it.
- Exclusions: it does not apply to transactions with the company itself, which fall under s 177 (proposed) and s 182 (existing).
The Corporate Opportunity Doctrine
- Regal (Hastings) v Gulliver: liability to account does not depend on fraud or bad faith; the company’s “unexpected windfall” is immaterial beside the fiduciary principle.
- Bhullar v Bhullar: a director who discovers an opportunity even in a “private capacity” breaches the duty by exploiting it without disclosure if the company “could be interested”.
- IDC v Cooley: the duty to disclose is a continuing one — resignation by a false claim of illness was a breach.
Post-Resignation Conflicts
Under s 170(2)(a), the duty continues for a former director regarding opportunities they learned of in office — a balancing act between protecting the company and allowing people to earn a living. Foster Bryant Surveying v Bryant suggested a “relevant link” between resignation and the business obtained; Burnell v Trans-Tag doubted that requirement, noting a breach can arise from acts after resignation.
Section 175 vs Section 177
- External vs internal: s 175 concerns dealings with third parties; s 177 concerns a proposed transaction with the company itself.
- Action required: s 175 requires avoidance or board authorisation; s 177 requires a declaration of the nature and extent of the interest before the company contracts.
- Purpose: s 175 is preventative, a deterrent; s 177 affords protection to those who comply by ensuring board awareness.
- Remedies: breach of s 175 makes a third-party contract voidable (where the third party had notice) and requires an account of profits; breach of s 177 also makes the transaction voidable but, unlike s 182, carries no criminal liability.
Multiple Directorships and Competition
Although London and Mashonaland once suggested directors could sit on rival boards, modern law is sceptical: in In Plus Group v Pyke, a director escaped breach only because he had been wholly excluded from management, the court noting the space for non-breaching competition is “very narrow indeed”.
Deterrence vs Pragmatism
The strict English model is debated against more relaxed regimes — in the Canadian Peso Silver Mines v Cropper, no breach arose where the board had bona fide rejected the opportunity. The CA 2006 modernised the law by allowing boards to authorise conflicts (s 175(4)(b)) — automatic in private companies, expressly permitted in public ones. Related debate surrounds s 176 and loss-of-office payments, with binding member votes on remuneration policy aimed at preventing “golden parachutes” as “rewards for failure”.