Conflicted Directors: What is Required to Avoid a Breach of Duty?

Abstract

Directors with a conflict of interest or conflict of duties may be subject to different requirements. These include disclosure of the conflict, disclosure of further information relevant to the particular transaction and taking positive action to protect the company’s interests, which may include the director preventing the transaction from proceeding. The authors analyse the relevant case law to identify the factors that lead to courts imposing these requirements. They show that the cases are best analysed as a continuum of required action, with increased action by the director being required where the company needs protection and the director is in the best position to take protective action. The authors also demonstrate that the relevant duty under which these requirements are imposed varies, with duties such as the duty to act in good faith in the interests of the company and the duty of care applying in addition to the duty to avoid conflicts.

Keywords: directors' duties, conflict of interest