Declaration of a conflict of interest
August 2022 – If a company director has a property interest that is contrary to that of the company, he must declare this correctly and in good time. How should he do this?
Conflict of interest
The term 'conflict of interest' in company law refers to the situation where a member of the administrative body of a company has a direct or indirect interest of a proprietary nature that is opposed to the interest of the company. The Companies and Associations Code (CCA) contains explicit rules on what to do in this specific case.
When one or more directors have a conflict of interest, the decision for the company must be taken by the other directors who do not have a conflict of interest. If the administrative body is a collegiate body, the director with a conflict of interest may not participate in the deliberations and decision-making. The director concerned must inform the administrative body before it takes a decision. His declaration and explanation of the nature of the conflicting interest should be included in the minutes of the meeting of the administrative body.
Where all directors have a conflict of interest, the decision should be taken by the general meeting.
Where there is only one director, he or she should also submit the decision to the general meeting.
Where the director and the shareholder are one and the same person, that person is authorised to take the decision.
However, there are some exceptions to these rules, such as for transactions between affiliated companies or for usual transactions concluded at market conditions.
The report
When a conflict of interest arises, the party authorised to take the decision - i.e. the directors who are not in a conflict of interest, the general meeting or the director himself - must report on the nature of the decision or transaction. This is done via the minutes of the meeting or via a special report.
The report must also contain the financial consequences of the decision or operation and a justification of the decision taken.
If it is a situation where the sole director is also the sole shareholder, the report must also contain the contract concluded between the director and the company.
The management report
The relevant part of the minutes or the special report must in principle be included in full in the management report, but it is sufficient to mention the conflict of interest in the management report and to refer to the minutes or the special report, which is then attached in full as an appendix.
Smaller companies that are not obliged to include a management report in their annual accounts must prepare a separate document that is filed together with the annual accounts. This document also contains the full text of the minutes or special report.
If the company has appointed an auditor, the minutes must be communicated to him and he must assess in a separate section the financial consequences for the company of the decisions of the administrative body or the general meeting.
The management report is the document in which the administrative body reports on its policy. It contains:
a fair presentation of the development and results of the company's activities and of its situation;
a description of the main risks and uncertainties facing the company
information on circumstances that could have a significant influence on the development of the company, provided that they are not such as to be seriously detrimental to the company;
information on research and development activities;
etc.
The annual report must also contain information on important events that occurred after the end of the financial year. If a conflict of interest arises between the closing date of the financial year and the date of the general meeting, this conflict of interest must be disclosed in the first subsequent annual accounts. Therefore, it is not necessary to wait until the annual accounts and the annual report for the financial year in which the conflict of interest occurred are prepared.
Sanctions
Failure to declare a conflict of interest is subject to the usual sanctions provided for by company law, which aim to protect the interests of the company, creditors and shareholders. This means that any interested person can claim the nullity of decisions or operations that have been taken or carried out in contradiction with the above-mentioned rules. Directors may also be held jointly and severally liable.
