Section 177 of the Companies Act 2006 requires directors of companies to declare any interest they have in a proposed transaction or arrangement involved with the company. This is to ensure not fall biased as a director in taking related decisions and that other directors be aware of any potential conflicts of interest to make informed decisions about the ongoing transaction.
Section 177 applies to all directors, regardless of whether they are involved in the transaction or arrangement. It also applies to indirect interests, such as where a director’s spouse or child is involved in the transaction.
Under ss (4), the declaration of interest must be made in writing. It must include the nature and extent of the interest and made before the company enters into the transaction or arrangement. The declaration should be made to the other directors at a meeting of the board or by notice to the directors under ss (2). It can be made by written notice or by way of a general notice under Sections 184 and 185. The difference between the written notice and the general notice here is that the general notice would cover future interests without the need to repeat it.
If a director fails to make a declaration, he may be liable to the company for any loss it suffers as a result of the transaction or arrangement.
Model Article 14 of the Model Articles Regulation 2008 confirms that the interested manager will not be counted as participating in the decision-making process. However, MA14 can be disapplied by an ordinary resolution, but the conflict of interest as a principle in section 177 cannot be disapplied by any means. Also, the manager of interest can participate in the decision-making process if his interest is not serious enough to raise a conflict of interest or his declared interest is only related to him buying new shares in the company, Model Articles 14 (3-b) and (4-b).
Here are some examples of situations where a director would be required to declare an interest under section 177:
A director who is a shareholder in a company that is negotiating a contract with the company.
A director who is married to a supplier of goods or services to the company.
A director who is a director of another company that is negotiating a contract with the company.
Section 177 is an important law that helps to protect the interests of companies and their shareholders alike. It ensures that directors must be aware of any potential conflicts of interest and that they are not able to use their position to benefit themselves at the expense of the company and its shareholders.
If you are a director of a company, it is important to be aware of your obligations under section 177. If you have any questions about an issue related to Section 177, AIO Legal Services will be glad to answer all your questions.