Directors Duty to Avoid Conflict of Interest

Company directors have a fiduciary duty to exercise
their duties without conflict of interest.

In the case of Regal (Hastings) Ltd v Gulliver, the directors who took advantage of a business opportunity instead of the company had to forfeit the proceeds from the deal to the company. This was despite the fact that the company itself was incapable of exploiting the opportunity.

So the duty to avoid conflict of interest means that company directors who partake in ‘side deals’ might have the proceeds of any such deal forfeited to the company they serve.

Company directors will be frequently presented with opportunities that arise because of the position they hold with the company that they serve. The case of Regal (Hastings) Ltd v Gulliver demonstrated how important it is for directors to avoid conflict of interest regardless of whether a particular opportunity could even be pursued by the company. In this case, the directors should have gone to the members to get the green light in order to indemnify themselves and pursue the deal.

Ethics might held identify when a conflict of interest will arise, but it is the law that will enforce it. If you’re unsure whether or not a conflict is, the very fact that you’re asking the question would probably indicate that there is some degree of questionable conflict.

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