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Management, administration and the regulation of companiesSyllabus FDirectors' DutiesConflict of Interest

ACCA · Question 55 · Management, administration and the regulation of companies

Section B - Scenario 4

SCENARIO: 'BioSynth Plc' is a synthetic biology firm. Dr. Aris is a director. BioSynth is approached by an investor offering a lucrative contract to develop a new enzyme. The board of BioSynth declines the contract because the company lacks the specific lab equipment required. Dr. Aris, seeing the potential, resigns from BioSynth and sets up his own private company, 'ArisEnzymes Ltd', which buys the equipment and takes the contract for itself, making a £500,000 profit.

QUESTION: Which specific statutory duty under the Companies Act 2006 has Dr. Aris most likely breached?

Answer options:

A.

Section 171: Duty to act within powers.

B.

Section 174: Duty to exercise reasonable care, skill and diligence.

C.

Section 175: Duty to avoid conflicts of interest.

D.

Section 177: Duty to declare interest in proposed transaction.

How to approach this question

Identify the duty relating to corporate opportunities and conflicts.

Full Answer

C.Section 175: Duty to avoid conflicts of interest.✓ Correct
Section 175 of the Companies Act 2006 requires a director to avoid a situation in which they have a direct or indirect interest that conflicts with the interests of the company. This specifically applies to the exploitation of any property, information, or opportunity. The fact that the company rejected the opportunity, or that he resigned to take it, does not prevent the breach (s.175(2) and s.170(2)).

Common mistakes

Assuming that because the company rejected the contract, the director is free to take it. Case law (e.g., Regal (Hastings) Ltd v Gulliver, IDC v Cooley) strictly prohibits this without shareholder approval.
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