Conflicts and Profits

Abstract

This chapter provides comprehensive analysis of the duties to avoid conflicts and profits (the conflicts and profits rules) and their statutory equivalents. The parameters of the term ‘conflicts’ are explored, including conflicts of interest and conflicts of duty. Debate surrounds whether ‘real sensible possibility’ of conflict is sufficient to give rise to a breach of the conflicts rule or whether proof of ‘actual’ 76 conflict or ‘pursuit’ of a conflict is necessary. The duty to avoid unauthorized profits is also discussed given that, in many cases, this duty also pertains to conflicts. The interrelationship between the duties to avoid conflicts and profits is critically analysed and comprehensive commentary on statutory iterations is provided. It is suggested that the key requirement, which also operates as a ‘rule of thumb’ and underlying principle, is that directors act in good faith in what they consider to be the interests of the company, thus exercising independent judgment. In this sense, the requirements imposed by corporate governance regimes essentially protect the ability of, and require, directors to act in good faith in the interests of the company. The final part of the chapter outlines the law concerning directors’ fiduciary duties to individual shareholders.