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6.conflict of Interest and Liabilities

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27 views27 pages

6.conflict of Interest and Liabilities

Uploaded by

ilker1923
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Conflict of interest and

directors liabilities

ASST. PROF. DR. FJOLLA KAPROLLI ISMAILI


FACULTY OF LAW
IBU
The director’s primary duty is to act for the interest of the
company and its shareholders

Director should act in the best interests of all shareholders,


and that includes future shareholders

Duty to promote success of the company


The directors need to act bona fide in the interest of the
company and the interests of the shareholders as general
body

They need to balance the interest of the present members


with the long term interests of the future members

They need to consider the interests of the creditors when


the company is insolvent
Conflict of interest is:

A situation that has the potential to undermine the impartiality of a


person because of the possibility of a clash between the person's self-
interest and professional interest or public interest.
The duty to avoid conflict of interest means - not to enter
without consent into engagements in which the director
has, or can have a personal interest that possibly may
conflict with the interests of the ones he/ she bounds to
protect

“No profit rule” is set to prevent disloyalty

The director has duty to protect and promote the company


interests not his own
A director of the company must avoid situations in which
he/she can have direct or indirect interest- that in particular
applies to the exploitation of any property, information or
opportunity

 No conflict rule goes together with no profit rule

 The loyalty of the director is must!


The problem is identifying whether the conflict of interest
exists

The director sometimes can’t realize the potential conflict


or chose to ignore it

It is important to distinguish if the situation that puts the


director in conflict or in possible conflict of interest
Important questions
Is he/she promoting the business interest of the company
or his/hers own?
Does the situation/ opportunity, the potential or existing
conflict it is in the scope of business?
Conflict of duty

The director can not be a director of another company that


wholly and partly engaged competitively in the same trade

That can raise a potential conflict of interest

The duty usually is set into the Articles of the company


Director of company A is also director of company B that is
customer of A

Director of company A is also director of company B that is


supplier of A

Director of company A is also director of company B and


each of the company is seeking to establish a business with
company C
Except the conflict of duty It is particularly prohibited the
exploitation of any property, information or opportunity in
situations there is circumstances or possible conflict of
interest

Usually the companies set the strict liabilities and strict


approach for avoiding that kind of situations
The no – conflict rule and the departing director
The director may resign in any time even that such a
resignation may harm the interest of the company

The company can’t stop the director to resign but can set a
rules in his/hers contract that certain period of time can not
be engage in any competitive activity

That is usually regulated with service agreement that


prohibits the director to use confidential information and
gain personal benefit
Disclosure of the conflict
If a director finds in a situation of conflict or possible
conflict he/ she must regularize or abandon it
There is no rule that makes the director to disclosure the
possible conflict or conflict of interest but only to avoid it or
to regularized
Still if there is a situation that can’t be avoided the director
need to disclosure the conflict to the shareholders or to the
board of the directors
The director need a approval to continue with the acting
from the shareholders

The conflicting director seeking


authorization remains the
subject of its duties
The director that started to participate into a competition
business unlikely to meet the requirements to promote
success of the company

In seeking the authorization the conflicting directors can be


excluded from voting but not from a discussion although it
depends how this situation is regulated with the Articles of
association
Benefit from third parties

Getting bribed puts the director into position of conflict to


bench his/hers duty or loyalty

Bribe is crime

Accepting benefits from third parties?

In situations of getting some benefits the director need a


authorization from a board although it is better this
situations to be regulated with the statute
The benefit can be seen as conflict of interest or possible
conflict of interest, can be a favorable or helpful factor,
circumstances or advantage for the one that give the
benefit

Limitations:
- benefits from service contracts where the director is giving
a services to an associate company
- ordinary commercial hospitality (meals, gifts, tickets for
events…)
- benefits approved by shareholders
If the director puts the company in possible conflict with
signing some particular contract the company can chose to
whether to affirm or avoid the contract

The right to avoid the contract is lost if


1) the company is acting late
2) there is no possibility for restitutio in integrum
3) the right of bona fide of third parties are important
The director is liable for the lost of the company because
the contract

The director is not liable if the lost would happen anyway or


if the director have disclosure the conflict before entering
into the contract

The director is liable if had disclosure the conflict of interest


in front of the company but it is too late to act and the
company to avoid the transaction
Manner and time of disclosure

- clear and visible


- to the other directors
- oral or in writing
- on time
The conflict of interest is connected to director and
- members of his/hers family
- corporation with which he/she is connected
- trust of trusties that he/ she is member or members
his/hers family
- any partner or partners partner
- firms with he/ he is connected
Thank you!
Dictionary

Duty – obligation
Consider- to think about something, to take it into account
Undermine- threaten
Impartiality – objectivity
Consent – agreement, approval
Bound – obligation
Exploitation - use
Profit- income, benefit
Scope – range
Trade – market
Supply – to give, to bring things to someone
Prohibited – not allowed
Liabilities – responsibilities
Resign – give up
Agreement – contract
Authorization – permission
Disadvantage – to put someone into not favorable position
Foster – make it happen, push
Disclosure – to open, to show
Oral – spoken
Trusties – founds
Remuneration – compensation
Claims – requests
Fiduciary – given , transmitted, authorization, responsibility
Negligence – without care and without intention

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