What are a Company Director’s Duties to Avoid and Disclose Conflicts of Interest

Every UK company director has a statutory duty to avoid conflicts of interest and to declare them when they arise. Breach this duty and you face personal liability, removal from office, and the obligation to account for any profit you made from the conflict.

We see directors breach this duty without realising it. A director who awards a company contract to a business their spouse owns. A director who takes a business opportunity that the company should have pursued. A director who has a financial interest in a competitor.

Each of these is a conflict of interest under sections 175 to 177 of the Companies Act 2006, and each one creates personal consequences that limited liability does not protect you from, because the breach is yours, not the company’s.

Quick Answer on Director Duties for Conflicts of Interest

Under the Companies Act 2006, you must: (1) avoid situations where your personal interests conflict with the company’s interests (section 175), (2) not accept benefits from third parties that arise from your position as director (section 176), and (3) declare any interest in a proposed or existing transaction with the company (section 177).

The duty applies whether or not the company suffers a loss. Even if the conflicted transaction was a good deal for the company, the failure to declare is still a breach.

We tell directors: the duty is about transparency, not prohibition. You can have interests that overlap with the company’s. You just cannot hide them. Declare the conflict, let the board (or shareholders) decide, and document the decision. The directors who get into trouble are not the ones with conflicts. They are the ones who concealed them.

Section 175: The Director’s Duty to Avoid Conflicts of Interest

Section 175 requires you to avoid situations where you have, or could have, a direct or indirect interest that conflicts with the company’s interests. This is the broadest of the three conflict duties and catches situations that directors often do not recognise as conflicts.

Common examples we see:

• Diverting a corporate opportunity. You discover a business opportunity through your role as director and take it for yourself instead of offering it to the company. Even if the company could not have pursued it, the duty to offer it first still applies.
• Competing with the company. You set up or invest in a business that competes with the company you direct. Unless the articles permit it or the board has authorised it, this is a breach.
• Using company information for personal gain. Confidential information you acquire as a director belongs to the company. Using it for personal trading, investment, or to benefit another business is a breach.

The duty can be authorised by the other directors (in private companies, unless the articles say otherwise) or by the shareholders. We advise directors to seek authorisation before entering into any situation where a conflict could arise, not after. Retrospective authorisation is possible but creates a period of breach that the company or a liquidator could challenge.

Section 177: The Director’s Duty to Declare Interest in Transactions

If you have any interest, direct or indirect, in a proposed transaction or arrangement with the company, you must declare it to the other directors before the company enters into the transaction. This includes:

• Contracts with companies you or your family members own or have a stake in.
• Transactions where you stand to benefit personally (commissions, fees, profit shares).
• Loans from the company to you or connected persons.
• Property transactions between you and the company.

The declaration must be made at a board meeting or by written notice. It must be made before the transaction is entered into.

We have seen directors who disclosed a conflict verbally over lunch but did not record it in the board minutes. That is not a valid declaration. The board minutes must reflect the disclosure and the board’s decision.

For existing transactions (where you become aware of the interest after the transaction has been entered into), section 182 requires declaration as soon as reasonably practicable.

Consequences of Breaching the Director Conflict of Interest Duties

The consequences are personal and can be severe:

• Account of profits. You must hand over any profit you made from the conflicted situation, even if the company suffered no loss.
• Damages. If the company suffered a loss because of the breach, you are personally liable for that loss.
• Transaction voidable. The company can set aside (void) any transaction in which you had an undeclared interest.
• Removal from office. The other directors or shareholders can remove you.
• Misfeasance claim in liquidation. If the company enters insolvency, the liquidator can bring a misfeasance claim under section 212 of the Insolvency Act to recover losses caused by the breach.
• Director disqualification. Persistent or serious breaches of duty can form part of a disqualification case.

We stress the misfeasance point because it is the most common way conflict-of-interest breaches surface in practice. The company trades fine for years, the conflict is never challenged, and then the company enters liquidation.

The liquidator reviews every significant transaction, discovers the undeclared conflict, and brings a misfeasance claim. The breach may be five years old, but the claim is live.

How to Manage Director Conflicts of Interest Properly

1. Identify the conflict early. Before entering any transaction where you have a personal interest, stop and ask: would a reasonable outsider see this as a conflict?
2. Declare it formally. At a board meeting, recorded in the minutes. Or by written notice to all directors. Verbal disclosure alone is not sufficient.
3. Seek authorisation. In a private company, the other directors can authorise the conflict under section 175(4) unless the articles restrict this. For section 177 interests, the declaration itself may be sufficient, but board approval of the transaction is best practice.
4. Recuse yourself from the decision. If the conflict is material, do not vote on the transaction. Leave the room while it is discussed. Record your absence in the minutes.
5. Document everything. The minutes, the declaration, the authorisation, the board’s reasoning. If the conflict is later challenged, documentation is your defence.

We find that most conflict-of-interest problems in small companies arise not from dishonesty but from informality. Two director-shareholders who run the business together and never hold formal board meetings. Decisions are made over coffee, conflicts are known but undiscussed, and nothing is documented.

This works fine until the company enters insolvency and the liquidator asks for the board minutes that do not exist.

Director Conflicts of Interest: What You Should Do Next

If you are a director with an existing or potential conflict, declare it now. If your company has never formally documented conflict authorisations, start. If the company is approaching insolvency and you have undeclared conflicts in past transactions, take legal advice before the liquidator discovers them.

Company Debt connects directors with licensed insolvency practitioners who can assess your position. If you are worried about how past conflicts will be viewed in a conduct investigation, a confidential conversation will clarify your exposure.

FAQs on Director Conflicts of Interest