The issue of conflicts of interest will be highlighted for company directors on 1 October 2008. This is the date on which they will become subject to three new statutory duties.
The first is the duty to avoid conflicts of interest, imposed by s175. It is extremely wide, catching even a situation in which there is only the mere potential for a direct or indirect conflict of interest.
It applies in particular to the exploitation of any property, information or opportunity, whether or not the company can take advantage of it.
There will be no breach of this duty if, on the facts, there is no reasonable prospect of a conflict. Alternatively, the matter giving rise to the conflict may be authorised by the directors without the potential conflict, provided this is not prohibited by the memorandum and articles of association.
Under s176, a director of a company may not accept a benefit from a third party, given to him because of his office or because of anything he does or does not do as a director. Where does this leave an indemnity provided by the principal employer to the corporate trustee of its pension scheme and its directors?
There is an exception if the benefit is provided by an associated company. The Companies Act 2006 also contains a “qualifying pension scheme indemnity provision” in s235. This type of indemnity can protect a director of a company that is a trustee of an occupational pension scheme. However, it will not indemnify the director
Any qualifying pension scheme indemnity provision must be disclosed in the directors’ report.
Section 177 provides that a director who has a direct or indirect interest in any transaction must disclose that interest before the matter is discussed. This is a particularly sensitive issue for trustee directors who are also senior executives within the sponsoring employer. As part of their employment they will become aware of commercially sensitive or confidential information concerning the employer or the group which would be of interest to the other trustee directors.
Consideration should be given to the development of a formal conflicts policy. It may be sensible to add a provision to the trust deed and to the corporate trustees’ articles which exempts trustees and trustee directors from disclosing information which is confidential to the participating employer, provided they disclose the existence of the conflict and comply with the conflicts policy.
Jane Samsworth is a partner in the pensions practice at Lovells
www.lovells.com
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