Disclosure of a conflict of interest
If a director of a company has a proprietary interest that conflicts with that
of the company, he must disclose this in a timely and correct manner. How do you
The conflict of interest
The term conflict of interest in company law refers to the situation where a
member of the board of directors of a company has a direct or indirect interest
of a patrimonial nature that is contrary to the interests of the company. The
Companies and Associations Code (CAC) provides for explicit rules about what
must be done in such case.
If one or more directors have a conflict of interest, the company's decision
must be taken by the other non-conflicted directors. If the board of directors
is a collegial body, the conflicted director may not participate in the
deliberations or in the decision-making. The director concerned must inform the
board of directors himself, before the board takes a decision. His statement,
together with an explanation of the nature of the conflict of interest, must be
included in the minutes of the meeting of the governing body.
If all directors are in conflict, the decision must be taken by the general
If there is only one director, he must also have the decision taken by the
In situations where the director and the shareholder are one and the same
person, that person may make the decision himself.
There are some exceptions to these rules, such as for transactions between
affiliated companies or for usual transactions at market conditions.
If a conflict of interest arises, the party authorized to take the decision
i.e. the non-conflicted directors, the general meeting or the director himself
must prepare a report on the nature of the decision or transaction. This is done
via the minutes of the meeting or via a special report.
The report must also contain the financial consequences of the transaction or
decision and a justification of the decision taken.
In the case of a situation in which the sole director is also the sole
shareholder, the report must also contain the agreement concluded between the
director and the company.
The annual report
In principle, the relevant part of the minutes or the special report must be
included in its entirety in the annual report, but it is sufficient to mention
the conflict of interest in the annual report and to refer to the minutes or the
special report, which are then attached in full.
Small companies that are not obliged to include an annual report in their annual
accounts must prepare a separate document that is then filed with the annual
accounts. That document also contains the full text of the minutes or the
If the company has appointed a statutory auditor, the minutes must be
communicated to the statutory auditor and the statutory auditor must express an
opinion in a separate section on the financial consequences for the company of
the decision of the board of directors or of the general meeting.
The annual report is the document in which the governing body accounts for its
policy. It includes things like:
a true and fair view of the development and results of the company and of the
position of the company;
a description of the main risks and uncertainties the company is facing;
information about the circumstances that could significantly influence the
development of the company, insofar as such information is not of such a nature
that it could cause a serious disadvantage to the company;
information on research and development activities;
The annual report must also contain information on the significant events that
took place after the end of the financial year. If there is a conflict of
interest between the closing date of the financial year and the date on which
the general meeting takes place, you must report that conflict of interest in
the next annual financial statements. You should therefore not wait for the
annual accounts and annual report to be drawn up for the financial year in which
the conflict of interest arose.
Failure to report a conflict of interest is subject to the usual corporate law
sanctions, which aim to protect the interests of the company, creditors and
shareholders. This means that any concerned party can claim the nullity of
decisions or transactions taken in violation of the above rules. In addition,
the directors can be held jointly and severally liable.