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Conflict of Interest - Whether Director a Can Obtain a Two-Year Consultancy with Buildex Ltd?

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Issue No. 1

Whether Director A can obtain a two-year consultancy with Buildex Ltd?

Generally a director is not precluded from being appointed to any office of the Company: s 95 (a) of the Companies Act of Dominica, Chap. 21:01. The Chairman ought to refer Director A's request to the Chief Executive Officer (CEO) who is mandated to convey this to the Board to determine whether there is a need for the consultancy.

At the Board meeting the Chairman should make it known that Director A has offered his services as a consultant to assist with the procurement of the company's new batching plant. This interest should be expressed in writing and submitted to the Board: s 91 (1) (b).

A should then excuse himself from the meeting. The Chairman may submit his case in favour of A on the ground that he is qualified and competent and would be an asset to the company.

For the purpose of transparency and merit, the position should be advertised both internally and externally. The Board should consider the skills and qualifications required for the post, the length of the consultancy, the consultant's remuneration, as well as all additional costs to the firm. Whatever decisions are made by the Board it should be formally minuted.

Furthermore, the Board should commission a human resources ("HR") committee consisting of at least one non-executive director, the company's HR manager, and an independent HR consultant to make recommendations on remunerations, terms and related benefits. The said Committee would then make a full disclosure of its finding to the Board. A is expected to excuse himself from participating in the discussions to select the consultant but he is still entitled to vote.

In keeping to the appointment procedure regulations, if A is selected he is not mandated to leave the Board as a director: s95 (b). And it is doubtful that the Chairman could avoid a precedent for other directors to pursue consultancy contracts as in A's circumstance. However, members should be impressed that the company is mandated by statute to entertain such applications as this is only in the best interests of the company.

Should the possibility of conflict arise, ask that Director A step down as director during the period of his consultancy. The directors may create such a resolution and could also amend the company's by-laws by the shareholders to address this: s 64 (1).

Word Count: 370

Issue No.2

Whether the CEO in assuming the position of Consultant in Build It Ltd constitutes a breach of his duties to Buildex Ltd?

It is the duty of the director to act in the best interests of the company: s 97 (1) (a).The CEO would qualify as an officer since his functions are similar to that of a managing director: s 58 (b); therefore, he has fiduciary obligations towards Buildex Ltd. He is bound by the inherent duties of an employee to act honestly and in good faith and in the best interest of Buildex Ltd, exercise care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances: s 97(1) (b).

Therefore, the CEO may be in conflict of interest contrary to his duties to Buildex Ltd. He should not only avoid actual conflicts, but even the appearance of conflict between his obligation to Buildex Ltd and his personal interests and duties to Build It Ltd: Transvaal Lands Co. v. New Belgium [1914] 2 Ch. 488. Though there may be exceptions, the CEO is part of a family-run company which is in direct competition and it would be difficult for him to fulfil his obligations to both companies simultaneously without breaching his obligation to the other: Plus Group Ltd. v. Pyke [2002] 2 BCLC 201. Furthermore, although the CEO cannot be found to be receiving any financial gain in Build It Ltd, it is taken that he is in receipt of remuneration since such office is a paid position hence a conflict of interest.

The Chairman should lodge a search at the Company's Registry to inspect Build it Ltd.'s certificate of incorporation and other documents to obtain necessary facts. In compliance to s78 he should convene a board meeting in the absence of the CEO to determine a course of action. Advice should be sought from external legal counsel on the way forward since statute establishes liability for breach of fiduciary duties. If thereafter, the Board decides to take adverse actions, in light of natural justice he should be allowed an audience before the board, to be heard and to defend himself. The Board decisions should be formally minuted.

The Board may be desirous of asking the CEO to resign from his position at Buildex Ltd. If he fails to act accordingly, he can be removed from office which in effect would terminate his contract of employment subject to s73& s74. If the company wishes to retain his services, they can apply for an injunction restraining him from being a director in 'Build It Ltd, but given the reality, it may be impossible to erase conflict of interest since his immediate family company is a rival. Therefore the best decision would be to have him removed from office and the company may even bring an action for account of profits if it can be proven that he used Buildex information for the benefit of Built it:

Word Count: 420

Issue No. 3

Whether Director B, a non-executive director can obtain a personal loan from Buildex Ltd?

The Board should be guided by the root principle of corporate governance,

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