DIRECTOR’S PERSONAL FINANCIAL INTEREST

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May a director have a personal financial interest in any contract or matter before the board?

According to section 75(4) and (5) of the Companies Act a director may hold a person financial interest as long as the director disclose such an interest in advance to the board by delivering a notice to the board in writing setting out the nature and extent of that interest, which notice may be withdrawn by the director by further notice to the board.

If a director has a personal financial interest in respect of a matter to be considered at a board meeting, or knows that a related person has a personal financial interest in the matter, the director –

1. must disclose the interest and its general nature before the matter is considered at the meeting;
2. must disclose to the meeting any material information relating to the matter, and known to the director;
3. may disclose any observations or pertinent insights relating to the matter if requested to do so by the other directors;
4. if present at the meeting, must leave the meeting immediately after making any disclosure contemplated in paragraph (b) or (c);
5. must not take part in the consideration of the matter, except to the extent contemplated in paragraphs (b) and (c);
6. while absent from the meeting in terms of this subsection –
   1. is to be regarded as being present at the meeting for the purpose of determining whether sufficient directors are present to constitute the meeting; and
   2. is not to be regarded as being present at the meeting for the purpose of determining whether a resolution has sufficient support to be adopted; and
   3. must not execute any document on behalf of the company in relation to the matter unless specifically requested or directed to do so by the board.

If a director acquires a personal financial interest in an agreement or other matter in which the company has a material interest, or knows that a related person has acquired a personal financial interest in the matter, after the agreement or other matter has been approved by the company, the director must promptly disclose to the board the nature and extent of that interest, and the material circumstances relating to the director or related person’s acquisition of that interest.

A decision of the board, or a transaction or agreement approved by the board, is valid despite any personal financial interest of a director or person related to the director, if it-

1. was approved in the manner contemplated in the Companies Act (as set out above); or

has been ratified by an ordinary resolution of the shareholders – the Companies Act does specifically regulate the situation where a Company is a “NPC” without members and a resolution was taken without the disclosure of a personal financial interest and so on, but one can argue that the regulation authority (in this instance the board) will have the same power to ratify a decision of the board as the shareholders would have had if it was a private company.