Week 6

Question 1

Duty to avoid conflicts of interest

Three sources of obligations:

Answer 1

Case law
The company’s constitution
Statutory provisions

Question 2

What is Conflict of Interest?

Answer 2

A fiduciary must avoid a conflict of interest
A conflict of interest is where the directors put themselves in a position where there is a conflict between their duties to the company and their personal interests
Duty of directors to avoid a conflict of interest is strictly applied
Motives are irrelevant

Question 3

Conflicts of interest arise where director:

Answer 3

Undisclosed personal profits from contracts with the company
Competes with the company
Takes up corporate opportunity/property
Misuse of confidential company information
Obtains personal profits
Holds directorship of 2 companies
Is a nominee director

Question 4

Conflict of interest: Case Law

Answer 4

Main principle from case law:
Directors must not place themselves in a position where personal interest conflicts with their duty to act in the interests of the company.(Hospital Products Ltd v United States Surgical Corp)
Directors can only do so with the permission of the members of the company.
However, many private companies have a rule in the constitution that allow the board of directors to allow a director to place himself in a position of conflict.
Must be actual conflict or substantial possibility of conflict.
Where there is a conflict the director must disclose the interest to the company.
It does not matter if the director did not make a profit. There is a breach if the director does not disclose their interest.
Applies to:
Directors
Senior executive officers