A conflict of interest for a company director arises when personal interests, duties to another company, or relationships influence — or could influence — their ability to act in the best interests of the company. Under the Companies Act 2006, directors must identify, disclose, and manage such conflicts properly to comply with their statutory duties and avoid legal or reputational risks.
Why Director Conflicts of Interest Matter
Being a company director is not just a title — it carries fiduciary and legal duties that underpin good corporate governance. One of the most crucial responsibilities is the duty to avoid conflicts of interest. Conflicts can occur easily: a director may hold shares in a supplier, sit on the board of a competitor, or have a relative working in a related company. Even if no wrongdoing occurs, the appearance of divided loyalty can undermine trust and expose directors to serious consequences. In this guide, Persona Finance explains how to identify, disclose, and manage conflicts of interest — and how to stay compliant with UK company law.
The Legal Framework: Companies Act 2006
The main statutory duties for directors regarding conflicts of interest are set out in the Companies Act 2006. The most relevant sections include:
Section 175 – Duty to avoid conflicts of interest
Directors must avoid any situation in which they have, or can have, a direct or indirect interest that conflicts — or may conflict — with the interests of the company.
Section 176 – Duty not to accept benefits from third parties
Directors must not accept any benefit (such as gifts, hospitality, or favours) given because of their position or role as a director, if it could create a conflict of loyalty.
Section 177 – Duty to declare interests in proposed transactions or arrangements
Before the company enters into any transaction, directors must declare the nature and extent of any interest they have in it.
These duties apply to all directors, whether formally appointed, shadow, or de facto. Importantly, even a potential conflict is enough to trigger the obligation — the harm does not need to occur.
What Counts as a Conflict of Interest?
A conflict of interest arises when a director’s personal, financial, or professional interests could influence their judgment. These conflicts fall broadly into two categories:
1. Situational Conflicts
These occur when a director’s role or position creates an ongoing risk of divided loyalty. Examples include:
Acting as a director of two companies that are competitors
Holding shares or interests in a supplier or customer
Using information gained as a director for personal gain
Exploiting a company opportunity for personal benefit
2. Transactional Conflicts
These arise when a director is personally involved in a specific deal or arrangement with the company. Examples include:
The company purchasing property owned by the director
A contract between the company and another business in which the director has an interest
Providing consultancy services to the company personally
Even indirect interests — for instance, through a spouse, family member, or trust — can create conflicts that must be disclosed.
Disclosure and Authorisation: How to Handle Conflicts Properly
1. Disclose Early and Clearly
If a director is aware of an actual or potential conflict, they must disclose it as soon as reasonably practicable. Disclosure should be made formally to the board of directors and recorded in the meeting minutes or the company’s register of interests.
2. Seek Authorisation
Conflicts may be authorised either by:
The board of directors, if permitted under the company’s Articles of Association; or
The shareholders, by passing a resolution if board authorisation is not available.
The authorisation must be given before the conflict affects any decision-making. Boards can also impose conditions — for example, that the conflicted director does not participate in related discussions or votes.
3. Maintain Transparency
All disclosures and authorisations should be properly documented. A conflict register should be kept up to date and reviewed regularly. This not only ensures compliance but also protects directors from allegations of concealment.
The Duty Not to Accept Benefits from Third Parties
Under Section 176, directors must not accept any benefit offered because of their directorship. This duty is designed to prevent bribery, undue influence, or subtle pressure to act in another party’s favour. Examples of prohibited benefits include:
Gifts or hospitality that could sway business decisions
Commission or referral payments
Employment offers or personal discounts linked to a business relationship
Reasonable hospitality or corporate gifts are acceptable only if they cannot reasonably be regarded as likely to give rise to a conflict. When in doubt, disclose it — transparency is always safer.
Consequences of Failing to Manage Conflicts
The consequences for breaching conflict of interest duties can be severe. A director who fails to disclose or properly manage a conflict may:
Be required to repay profits or benefits received from the conflict
Face disqualification under the Company Directors Disqualification Act
Be subject to legal claims by the company or shareholders
Cause contracts to be voidable if entered into under a conflict
Suffer reputational damage that harms future business prospects
The courts have reinforced this duty in cases such as Regal (Hastings) Ltd v Gulliver (1942), where directors were held liable for profits earned through exploiting company opportunities.
Best Practices for Avoiding and Managing Conflicts
1. Maintain a Conflict Register
Keep a permanent record of all disclosed interests, updated whenever circumstances change. This ensures transparency and simplifies compliance checks.
2. Review Company Articles
Check whether your company’s Articles of Association permit directors to authorise conflicts. If not, amendments may be needed to ensure flexibility.
3. Recuse Yourself from Decisions
If a conflict arises during board discussions, the director should step aside from those parts of the meeting and abstain from voting.
4. Implement a Conflict Policy
Having a written conflict of interest policy helps ensure that all directors understand their duties and the reporting process.
5. Seek Professional Advice
When a situation is unclear, obtain independent legal or accounting advice. Professional input can help determine whether a potential conflict exists and how best to manage it.
FAQs
Do all conflicts need to be disclosed? Yes, unless it is obvious to all directors that a director has no personal interest or benefit, it is best practice to disclose all potential conflicts.
Can a conflict be authorised after it happens? Usually no — authorisation must occur before the conflict influences a decision. In rare cases, shareholders may ratify a past breach, but this should not be relied upon.
What if the Articles of Association prohibit authorisation? In that case, only shareholder approval can validate the conflict. The director should not proceed without that approval.
Do these duties apply to shadow directors? Yes. Anyone acting as a director, even informally, may be treated as one under the Companies Act and subject to the same duties.
Conclusion: Managing Conflicts Is Good Governance
Conflicts of interest are not always avoidable — but mishandling them is. The key is transparency, disclosure, and proper authorisation. Directors who manage conflicts responsibly protect not only themselves but also the integrity and reputation of the business they serve.
At Persona Finance, we help company directors and business owners establish compliance frameworks, maintain conflict registers, and understand their statutory duties — so they can lead with confidence and integrity.
👉 Contact Persona Finance today to ensure your business remains compliant and your directorship risk-free.