8.8 Disclosure of director’s interest in contracts

CONTRACTS OF DIRECTORS WITH THE COMPANY

Since directors are in a fiduciary (trustee) relationship towards the company, they are unable to enter into contracts with the company as this would cause conflict of interest between the duty they owe the company and their own interest. If a director has an interest in any contract, he must declare his interest to the board when the contract is being discussed. A director is said to declare his interest not when he states that he has an interest but when he states what his interest are.

When should disclosure be made and to who?

Under section 151 this should be made at the time the contract in question comes before the board for discussion. If the interest arises after the question had come before the board for discussion, the disclosure must be made at the next board meeting. If the disclosure is made to individual directors, or creditors, it is invalid.

Instead of disclosing his interest to the board a director may under section 153 give a general notice to the effect that he is a member of a given company and in case of a contract give a general notice to the effect that he is a member of a given company and in case of a contract between the two companies, he should be presumed to have an interest.