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Management, administration and the regulation of companiesSection BSyllabus FCorporate and Business Law

ACCA · Question 57 · Management, administration and the regulation of companies

Scenario: 'Quantum Lithography PLC' manufactures microchips. The CEO, David, secretly sets up a rival consulting firm and diverts a lucrative government contract away from Quantum to his new firm. Another director, Fiona, fails to declare her 30% shareholding in a company that Quantum just signed a major supply contract with.

Question: Which specific statutory duty under the Companies Act 2006 has Fiona breached?

Answer options:

A.

Duty to exercise independent judgment (s.173).

B.

Duty to exercise reasonable care, skill and diligence (s.174).

C.

Duty to avoid conflicts of interest (s.175).

D.

Duty to declare interest in proposed transaction or arrangement (s.177).

How to approach this question

Distinguish between s.175 (external conflicts/opportunities) and s.177 (internal transactions with the company).

Full Answer

D.Duty to declare interest in proposed transaction or arrangement (s.177).✓ Correct
Under section 177 of the Companies Act 2006, if a director is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company, they must declare the nature and extent of that interest to the other directors. Fiona failed to declare her 30% stake in the supplier.

Common mistakes

Choosing s.175 (Duty to avoid conflicts of interest). Section 175(3) explicitly states that the duty does not apply to a conflict of interest arising in relation to a transaction or arrangement *with the company*. That specific scenario is governed by s.177.
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