Conflict of Interests: what’s a director’s duty to the company?
Directors are personally liable if they breach their duty to properly manage conflicts of interest. A recent case has highlighted important questions about the scope and extent of directors' duties under the CA 2006, in circumstances where a director's personal interests were involved.
The case is a reminder that while directors can never avoid the risk of a potential conflict arising – the actions they take if it does arise must comply with their statutory duties and not undermine the company.
Company directors owe several duties towards the company and its shareholders, including important fiduciary duties and the duty to exercise reasonable care, skill and diligence.
Conflict of interest
Directors also have a statutory duty under s175 to avoid placing him or herself in a position of conflicting personal interests.
A conflict may arise in different circumstances, eg where a personal or business relationship arises that conflicts with the company; a director directly personally benefits from a company asset, information or business opportunity; and taking a directorship in a competing company.
If the interests of the company as a separate entity are in conflict with the interests of the members as a whole (or some of them), the interests of the company should be preferred. This general duty under s172 is to promote the success of the company for the benefit of its members.
In Gardner v Upton [2026] EWHC 555 (Ch), Anthony Upton was the director of two aerospace manufacturing companies (one was the parent company). He undermined a proposed transaction that the parent company board itself had identified as being in the companies' interests. His unauthorised conduct ranged from lobbying politicians seeking political intervention in the transaction, to negatively misrepresenting the companies' position to regulators
The court ruled that Upton undertook these unilateral actions not to advance the interests of the company; rather to further his own interests in securing employment with a prospective new owner of the company in breach of his director’s duties. Furthermore, it was detrimental to the transaction and the companies’ interests and had had not disclosed his actions to the parent company’s board.
Upton therefore failed to promote the success of the companies for the benefit of their members as a whole (s172 CA 2006); and placed himself in a position of conflicting personal interests (s175). Upton also breached several contractual duties.
What does this mean?
Directors must take precautions to avoid situations where a direct or indirect interest arises that conflicts, or may conflict, with the interests of the company as a whole.
If a conflict, or potential conflict, arises a director should take robust action. They must, for example, declare the exact nature of the conflict of interest to the board. Failing to declare an interest in a particular transaction being entered into is a criminal offence and the director could face prosecution.
The court provided helpful clarification, stating that the s175 duty:
(i) applies in particular to the exploitation of property, information or opportunity (whether or not the company could have taken advantage itself);
(ii) does not apply to a transaction or arrangement with the company…;
(iii) is not infringed if the situation cannot be regarded as likely to give rise to a conflict or has been authorised by the directors; and
(iv) includes a conflict of interest and duty and conflict of duties.
The presence of the potential for conflict is to be ascertained by enquiring "whether a reasonable man, looking at the relevant facts, would think that there was a real, sensible possibility of conflict". It is an objective test – not whether the director "succumbed to temptation".
Where a potential conflict of interests has arisen, is important to speak with specialist corporate solicitors to determine what steps you should to take to protect your interests.
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