Furniture Manufacturing Company Management - Essay Example

Company Act 2006 Sec 177 requires all directors of a company to avoid conflicts of interest by declaring their interest in a proposed arrangement or transaction. Such declaration must be made by a written notice, a general notice or in a meeting of the directors. Company Act 2006 under Sec 182 (1) requires the directors to declare their interest in any transaction or arrangement that has been entered in to by the company whether direct interest or indirect interest in a transaction. In the above case, Tom has contravened Company Law provisions on duty to disclose conflict of interest in awarding Computers4Us the ICT contract.

Section 175 (1) which deals with conflict of interest requires all directors to avoid all situations which have either direct or interest which conflicts or may conflict with the interest of the company. The above case is a situational conflict of interest since Tom’s father is the owner of Computers4Us which will lead to transactional conflict since Tom is in a position to benefit from the ICT contract. Tom is criminally liable for breach of Company Act to avoid conflict of interest thus is liable to a fine.

While Company Act 2006 does not give a definition of “interest”, the duty to avoid conflict of interest will apply in situations that can lead to exploitation of information, opportunities and company property. Tom is both an executive director and significant shareholder in Imperial Ltd and his connection with Computers4Us has the potential may be adverse to the Imperial Ltd interests since it will influence the decisions made by the company. Although not expressly included in Company Act 2006, Tom should have declared his interest in Computers4Us since the term “connected” in the Act is wide enough to include spouses, step-children, director’s parents and civil partners of the directors.

Tom and Harry are both executive directors and shareholders of Imperial Ltd. Possibly; Tom’s shareholding influenced the decision to award Computers4Us the ICT contract. Tom as an executive director is fully aware that his father owns Computers4Us. In the above case, Tom should have declared his conflict of interest and the fact that his father owns Computers4Us to the board of directors either during the meetings, in writing or by just a general notice. Harry is free to sue for the cancelation of the contract since it contravenes the provisions of Company Act 2006 (Worthington and Sealy 2007).

For private companies formed before 1st October 2008, the directors have not automatic powers to approve any conflict of interest unless they amend the articles of association or pass a resolution to grant the directors such powers. For private companies formed on or after October 1st 2008, the board of directors has the powers to authorize a conflict of interest unless it is invalidated by the articles of association of the company (Davies 2010). However, in deciding to authorize the above conflict of interest, the directors of any private company must comply with Company Act 2006 provisions including the duty to promote and safeguard the welfare of the company.

Additionally, the resolution to authorize the conflict of interest should be done