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Management, administration and the regulation of companiesSyllabus FDirectors' DutiesConflict of Interest

ACCA · Question 18 · Management, administration and the regulation of companies

Section A

Under Section 175 of the Companies Act 2006, a director must avoid a situation in which they have, or can have, a direct or indirect interest that conflicts with the interests of the company. How can a director of a private company lawfully proceed if such a conflict arises?

Answer options:

A.

The conflict can be authorized by the independent directors, provided the articles of association do not invalidate such authorization.

B.

The conflict can only be authorized by a special resolution of the shareholders.

C.

The director must immediately resign; conflicts of interest cannot be authorized.

D.

The director can proceed without authorization as long as they disclose the conflict in the annual accounts.

How to approach this question

Recall the rules for authorizing conflicts of interest under s.175 CA 2006 for private companies.

Full Answer

A.The conflict can be authorized by the independent directors, provided the articles of association do not invalidate such authorization.✓ Correct
Under s.175 of the Companies Act 2006, a director must avoid conflicts of interest. However, in a private company, the independent directors (those not involved in the conflict) can authorize the conflict, provided the company's constitution (articles) does not invalidate such authorization.

Common mistakes

Assuming only shareholders can authorize conflicts, or confusing the rules for private companies with public companies (where articles must expressly *allow* directors to authorize).
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