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transaction or arrangement in question. For this purpose, a director is treated as being aware of matters of which he ought reasonably to be aware.

A director does not need to declare an interest:

if it cannot reasonably be regarded as likely to give rise to a conflict of interest; or

if, or to the extent that, the other directors are already aware of it (and for this purpose the other directors are treated as aware of anything of which they ought reasonably to be aware); or

if, or to the extent that, it concerns terms of his service contract that have been or are to be considered:

by a meeting of the directors; or

by a committee of the directors appointed for the purpose under the constitution.

It will be as well for boards to take a cautious and early view of whether and when a transaction is ‘proposed’. A chairman might, for example, want formally to say to the board that a particular transaction or arrangement is now proposed and remind the directors to disclose their interests (including actual or possible conflicts) as necessary. A cautious view is to remind directors who will be absent from a board meeting also to notify their interests on the same basis.

Additional obligations

The additional obligations on directors discussed below have been selected because they illustrate circumstances where, either expressly or effectively, they require boards of directors to act collectively in order to meet those obligations.

The obligation to declare interests in existing transactions or arrangements

The new law creates a new offence requiring a declaration of interest in existing transactions or arrangements. Under this new offence (section 177 of the Companies Act 2006) where a director is in any way, directly or indirectly, interested in a transaction or arrangement that has been entered into by the company, he must declare the nature and extent of the interest to the other directors in the manner required. (The offence does not apply if the interest has already been declared in accordance with the director’s duty to declare his interest in the proposed transaction or arrangement as described above.)

Where a declaration of interest in an existing transaction or arrangement is required, the declaration must be made at a meeting of the directors, by notice in writing or by general notice. If the declaration of interest proves to be, or becomes, inaccurate or complete, a further declaration must be made. The duty to make the declaration, or to update it, must be made as soon as is reasonably practicable. As with the duty of disclosure in relation to proposed transactions or arrangements, the director with the interest (the conflicted director) and the

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directors without the interest (the independent directors) are all treated as aware of matters of which they ought reasonably to be aware.

Although a director is not expected to disclose an interest of which he has no knowledge, or in relation to a transaction or arrangement of which he is not aware, to avoid any lapse of memory it is expressly provided that the test applied in relation to the knowledge of directors on this matter will be an objective test of reasonableness.

From the board’s point of view, what the combination of this codification and new offence does is to demand extra vigilance. This is required by individual directors to identify, anticipate, disclose and update their disclosure of actual or reasonably foreseeable conflicts and to do so as soon as is reasonably practicable. It also requires some extra vigilance on the part of the independent directors. The independent directors will want, as at present, to be sure that individual directors do comply. They may, therefore, be concerned to ask formally not just whether directors have interests to disclose but whether they have any update to make of previous disclosures. Quite possibly, one effect will be to make independent directors more concerned to ensure formally that all other directors know of the proposed transaction or arrangement and therefore can make the appropriate disclosure or update. In this way, directors have greater certainty that they are meeting the standard of skill, care and diligence required, that their actual knowledge includes matters of which they ought reasonably to be aware and that they are acting within their powers (for example, where the quorum provisions specifically exclude a conflicted director). Views and emphasis might differ on whether this was what was already required under the old law but, even if it was, it is illustrative of how the codification process is surfacing requirements latent or less obvious to the business person under the old general case law.

The obligation to comply with the Listing, Disclosure and Transparency Rules

A director who is knowingly concerned with a breach of these Rules can be fined or otherwise sanctioned by the FSA. For ease of regulatory enforcement the focus is on the conduct of an individual director. Regulators prefer not to meet the defence that as everyone was responsible, no one person alone should be liable. In substance these Rules impose significant collective responsibility on the board. A listed company (such as a Main Market company with securities admitted to trading on the London Stock Exchange) and all its directors have continuing obligations to the FSA, in particular to notify information needed to enable shareholders and the public to appraise the company’s position and avoid creating a false market.

To comply with these continuing obligations involves a high degree of collective responsibility on the part of the board. This is evidenced by the way the Listing Principles require a listed company to:

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take reasonable steps to enable its directors to understand their responsibilities and obligations as directors

take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations

act with integrity towards holders and potential holders of its listed equity securities

avoid the creation or continuation of a false market in such listed equity securities

treat (broadly speaking) its shareholders equally.

The obligation to disclose and certify disclosure of relevant audit information to auditors

The CAICE Act requires the directors’ report to contain a statement that, so far as each director is aware, there is no relevant audit information of which the auditors are unaware, and that the director has taken all the steps he should have taken to make himself aware of such information and to establish that the auditors are aware of it. This requirement for a new statement in the directors’ report applies to all companies whose accounts have been subject to a statutory audit for that financial year.

For this purpose, a director takes all of the steps that he ought to have taken in order to make the statement if he has:

made such enquiries of his fellow directors and of the company’s auditors for that purpose, and

taken such other steps (if any) as were required by his duty as a director of the company to exercise due care, skill and diligence.

The care, skill and diligence required of a director are consistent with the current common law duties of directors, such that the extent of the duty in the case of a particular director is:

the knowledge, skill and experience that may be reasonably expected of the person carrying out the same functions as are carried out by the director in relation to the company, and

(so far as they exceed what may reasonably be so expected) the knowledge, skill and experience that the director in fact has.

If the statement is not made at all, the existing offence in the Companies Act 1985 – failure to comply with the provisions as to the contents of directors’ reports – will apply. If a statement is made but it is a false one, each individual director who knew the statement was false, or who was reckless as to whether it was false, and who did not take reasonable steps to prevent the report from being approved is guilty of an offence. A person found guilty on indictment will be liable to imprisonment for up to two years and/or an unlimited fine, and

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