Declaring directors’ interests
The Companies Act 2006 divides the duty of directors to declare their interests in transactions and arrangements into two provisions:
- Section 177 relates specifically to directors declaring their interests in transactions or arrangements which are proposed but have not yet been entered into by the company.
- Section 182 deals with declaration of interests in relation to existing transactions or arrangements that the company has already entered into.
- There are one or two caveats. No declaration needs to be made unless there is a conflict of interest, or the situation may lead to one. There is also no need to disclose anything the other directors already know about or ought reasonably to have known. No declaration is required where the director is not aware of his interest or where the director is not aware (or could not reasonably be aware) of the transaction or arrangement in question.
The declaration must be made as soon as is reasonably practicable and relate to both the nature and extent of the director’s direct or indirect interest. In other words, what the interest might be (a shareholding in the company or a supplier) and what the interest is (a controlling interest or say only 5% of the company or supplier). Further declarations have to be made if an earlier declaration proves to be or becomes inaccurate or incomplete.
An indirect interest is not defined, but it would seem prudent for directors to consider the interests of their connected persons (i.e family members). Thus, the director does not need to be a party to the transaction with the company in order for a declaration to be required. Where the director’s spouse enters into a transaction with the company that may (but need not necessarily) give rise to an indirect interest on the part of the director in that transaction.
No disclosure is required where a private company has only one director.
Unlike section 182, a breach of section 177 is not a criminal offence.
However breach of section 182 renders a director liable on conviction to an unlimited fine.
Shadow directors (i.e. persons who behave like directors but are not registered as a director at Companies House) must declare the nature and extent of their interest in any transaction or arrangement that has been entered into by the company. As the declaration cannot be made at a board meeting, it must be made by notice in writing or by general notice.