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Company Directors - Beware Your Duty to Disclose Interests

on Friday, 05 March 2021.

Under English company law, company directors who have an interest in an arrangement with the company must declare the "nature and extent" of that interest to the other directors. A recent Court of Appeal judgment serves as a useful reminder of this duty.

What Happened in This Case?

A company operated a members' club centred on water-skiing on a lake. An unincorporated partnership ran a water ski school at the lake.

The businesses were independent of each other but in some ways intertwined. Among other things, the partnership ran the business for the company in return for a management fee and operated from a building at the lake, paying rent to the company for the use of the building and the lake.

The company decided at a board meeting in 2007 to increase the rent and the management fee and an agreement was reached with the partnership to reflect this. Ten years later, the company launched a court action claiming damages, including against the company's Chairman, for repayment of £350,000 paid by way of management fees to the partnership. The company claimed to be entitled to recover these fees because the chairman had failed to declare the nature of his interest in the proposed management agreement at a board meeting.

The Court's Decision

The Court of Appeal ruled that the Chairman had sufficiently declared the nature of his interest in the management agreement.  The Court of Appeal based its decision on several reasons including:

  • a fair reading of the relevant board meeting minutes showed that the Chairman gave a general notice of his interest which would have covered any future contract between the company and the partnership and also a specific notice of his interest in the particular contract
  • the conflict had been expressly raised at previous board meetings and had led to the formation of a sub-committee of which the Chairman was not a member
  • the nature and extent of the Chairman's interest in the proposed new contract was already known to the other directors

What Do Directors Need to Know?

Directors must be alert to the circumstances in which they should disclose their interests and should ensure that:

  • A declaration of a Director’s interest in a proposed transaction or arrangement with the company must be made as soon as is reasonably practicable
  • The declaration must be made before the company enters into the transaction or arrangement
  • The declaration must cover "the nature and extent" of the interest
  • Directors' disclosures should be documented in board minutes

Coronavirus Legal Advice

For specialist legal advice on your duties as a company director, please contact Emma Cameron in our Corporate Law team on 07939 261632, or complete the form below.

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