Conflicts of Interest, Corporate Opportunity and Minute-Taking at Ravenscroft Engineering

Duties engaged. Directors owe duties of good faith, to promote the success of the company, to exercise independent judgement, to avoid conflicts of interest, and to declare the nature and extent of any interest in a proposed transaction. Ayesha's brother's ownership of Kestrel is an indirect interest that must be disclosed; the fact that she is not on the conflicts register is itself a governance failure.

Procedure.

1. Ayesha must disclose her interest to the board in writing before the matter is discussed, and the disclosure must be recorded in the minutes and the conflicts register.
2. She should not vote and should not be counted in the quorum for that item. If the meeting is quorate only with her, the board cannot validly transact that business; the remaining directors must meet separately, or the item must be deferred.
3. The board must be able to show the price is fair. A £70,000 (18.4%) premium needs evidence: an independent quotation, a benchmarking exercise, a check of Kestrel's delivery record, and a documented reason why reliability outweighs £70,000.
4. Check the articles and applicable companies legislation for any related-party approval requirements, and whether the interest is one that must be entered in the register of directors' interests.
5. The minute must record the conflict, the disclosure, the recusal, the alternatives considered, and the reasons for the decision. A one-line minute would make the decision indefensible if challenged.

Chairman's position. A 45% shareholding does not override the directors' duties. A decision that benefits a director's family, taken without evidence or process, exposes the directors to challenge for breach of duty and the minority to a claim of oppression or unfair prejudice. The chairman's 'delivery is more reliable' assertion is not evidence.

The conflict. Peter is pursuing, in his own name, a maturing business opportunity that the company has been actively seeking for two years. That is a conflict between his personal interest and his duty to the company, and it arises regardless of whether the company could ultimately have completed the purchase. The duty to avoid conflicts is not satisfied by honest intentions or by the argument that he found the property himself.

Consequences.

• Breach of the duty to avoid conflicts and to act in good faith in the company's interests.
• The company may be entitled to require him to account for any profit, to treat the property as held for the company's benefit, or to recover losses, depending on the applicable law and the facts.
• A failure to disclose may also breach the duty to declare interests, affect the accuracy of board and statutory registers, and raise questions about the reliability of management representations to the auditor.
• It may give the minority shareholder grounds for complaint and, in serious cases, for regulatory or criminal exposure.

Remedial steps. Peter should make immediate written disclosure; the board should convene without him, take independent legal advice, investigate the timing and use of company information, and decide whether to seek assignment of the opportunity, ratification by disinterested shareholders after full disclosure, or other action. His position as managing director and his participation in board decisions should be reviewed, and the matter should be documented in the minutes. Simply 'regularising' the purchase after the event is not sufficient if the opportunity was taken without consent.

Legal position. Members generally have a right to inspect and receive copies of minutes of general meetings, but not an automatic right to inspect board minutes, which are internal and confidential. The company secretary should not release board minutes without board authority, and should check the articles, any shareholders' agreement and the applicable companies legislation before responding.

Response. Reply courteously and promptly, explain the legal position rather than simply refusing, provide the annual accounts and the minutes of general meetings (which the member is entitled to see), and confirm that the request has been referred to the board. Avoid any appearance of concealment, given the two live conflicts.

Governance implications. The request is a signal that the minority does not trust the board. The board should treat it as such:

• Review the completeness and accuracy of the minutes, and stop the practice of one-line minutes for conflicted transactions;
• Establish a written conflicts-of-interest policy and a related-party transaction policy with disclosure, recusal and independent verification;
• Update the conflicts register and the register of directors' interests;
• Consider appointing at least one independent non-executive, and a shareholders' agreement covering deadlock and minority protection;
• If the member alleges oppression or mismanagement, a court may order inspection of documents, so the board is better served by voluntary, controlled transparency than by resistance.