Protect directors from personal liability risk

Under the Companies Act 2006 new rules came into effect on directors’ conflicts of interest on 1 October 2008.

Companies should act now to:

• Protect their directors from risk of personal liability
• Prevent a transaction with a director becoming voidable

A company director needs to avoid any situation in which he has an actual or potential interest which conflicts with the interests of his company. This situation could arise where a director is a major shareholder of a company; where a director owes duties to different entities within a group; or has cross directorships with a supplier or customer of the company.

All companies should review and amend their articles of association to enable independent directors to authorise any conflicts of interests and stop them being in breach of the new legislation.

If articles of association are not amended then directors run the risk of breaching their new statutory duties. In the event that an actual conflict of interest occurs, where the correct authorisation procedures have not been followed, the company could find that the transaction in which the director has an interest becomes voidable and the director becomes personally liable.

Contact details
Email: Jonathan Gibson
Tel: +44 (0)20 7213 8038

Email: Mark Cleland
Tel: +44 (0)20 7804 3532