Declaring an interest in a proposed transaction (CA 2006 s.177)
Priya Nair is one of four directors of Halden Interiors Ltd. The board plans to approve a five-year lease of a warehouse from Moorgate Holdings Ltd at its meeting next week. Priya's husband owns 60% of the shares in Moorgate Holdings Ltd. None of the other directors knows of this, and Priya has said nothing because she personally holds no shares in Moorgate and will not be signing the lease.
Which of the following best describes Priya's duty under the Companies Act 2006?
Choose one answer to see the reasoning.
Worked answer
Correct answer B: She must declare the nature and extent of her interest to the other directors, at a board meeting or by notice, before the company enters into the lease.
THE RULE TO REMEMBER
A director with any direct or indirect interest in a proposed transaction with the company must declare its nature and extent to the other directors before the company enters into it, unless a s.177(6) exception applies.
Declaring an interest in a proposed transaction (CA 2006 s.177)
Section 177(1) of the Companies Act 2006 requires a director who is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company to declare the nature and extent of that interest to the other directors. Her husband's majority stake in the landlord gives Priya at least an indirect interest in the proposed lease. Under s.177(2) the declaration may (but need not) be made at a meeting of the directors, or by notice in writing under s.184 or general notice under s.185, and under s.177(4) it must be made before the company enters into the transaction. None of the s.177(6) exceptions applies: the interest can reasonably be regarded as likely to give rise to a conflict, the other directors are not aware of it, and it does not concern her service contract.
Why A is wrong: S.177(1) catches interests held "directly or indirectly", so the fact that the shares are in her husband's name does not take Priya outside the duty.
Why C is wrong: S.177 requires a declaration to the other directors; it does not itself require shareholder approval of the transaction.
Why D is wrong: S.177(4) requires the declaration to be made before the company enters into the transaction or arrangement.
Why E is wrong: The duty is mandatory and does not depend on a request; the only exceptions are those in s.177(5) and (6).
That's today's practice done. Another featured question tomorrow.
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