Avoiding Conflicts of Interest: Understanding Section 175 of the Companies Act 2006

The duty to avoid conflicts of interest is contained in section 175 of the Companies Act 2006. Although now statutory, the duty is rooted in long-established fiduciary principles that continue to shape how the courts interpret and apply it. Sections 170(3) and 170(4) expressly recognise that the general duties are derived from common law and equitable principles and should be interpreted in light of the authorities from which they developed. 

What does section 175 require?

Section 175(1) provides that a director must avoid a situation in which they have, or may have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. The duty is deliberately broad and applies to both actual and potential conflicts of interest. 

Section 175(2) confirms that the duty applies, in particular, to the exploitation of:

• company property;
• information; and
• corporate opportunities. 

Importantly, it is immaterial whether the company itself could have taken advantage of the property, information or opportunity in question. The focus is on preserving the director's undivided loyalty to the company. A breach may therefore arise even where the company has suffered no financial loss.  

The duty is not infringed where the situation cannot reasonably be regarded as likely to give rise to a conflict of interest under section 175(4)(a). Section 175(7) also makes clear that a conflict includes both a conflict between a director's personal interests and duties owed to the company, and a conflict between competing duties owed by the director. 

When does section 175 apply?

Section 175 is primarily concerned with what are often described as "situational conflicts". These include circumstances where a director becomes aware of a business opportunity through their position, seeks to use company information for personal benefit, or owes obligations to another person or organisation which may conflict with the company's interests.

The duty does not generally apply to a director's interest in a transaction or arrangement with the company itself. Under section 175(3), such matters fall outside the scope of section 175 and are instead governed by the disclosure obligations contained in sections 177 and 182 of the Companies Act 2006. 

Not every overlap of interests will amount to a breach. In Kirby v Baker & Metson Ltd [2020] EWHC 2640 (Ch), the High Court confirmed that the assessment under section 175(4)(a) is objective. The question is not simply whether the director believed a conflict existed, but whether the circumstances can reasonably be regarded as likely to give rise to one. 

The key authorities

The principles underpinning section 175 were developed long before the Companies Act 2006.

In Regal (Hastings) Ltd v Gulliver [1942] UKHL 1, [1967] 2 AC 134, directors were required to account for profits obtained through shares acquired by virtue of their positions, despite having acted honestly and despite the company itself being unable to acquire the shares. The decision remains one of the leading authorities on the strict nature of the no-profit rule. 

In Boardman v Phipps [1967] 2 AC 46, fiduciaries acting in good faith and having conferred substantial benefits were nevertheless required to account for profits because their personal interests gave rise to a possible conflict with their fiduciary duties.

In Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443, a managing director resigned and personally secured a contract opportunity that had come to his attention whilst acting for the company. The court held that he remained accountable for the opportunity. The case demonstrates that resignation will not necessarily release a director from fiduciary obligations connected to opportunities discovered whilst in office.

Similarly, in Bhullar v Bhullar [2003] EWCA Civ 424, [2003] 2 BCLC 241, directors acquired investment property without informing the company. The Court of Appeal held that they had breached their fiduciary duties even though the company was not actively seeking acquisitions at the time. The opportunity had come to their attention because of their position as directors.

Together, these decisions demonstrate the strict approach traditionally taken towards unauthorised conflicts of interest and profits. Section 175 largely codified those principles rather than replacing them.

Authorisation and continuing duties

Not every conflict will result in a breach. Section 175 permits directors to authorise certain conflicts, provided the company's constitution and statutory requirements are satisfied. Directors should ensure that actual or potential conflicts are disclosed at an early stage and that proper authorisation is obtained before taking any further steps.  

Importantly, the duty can continue after a director leaves office. Section 170(2)(a) preserves the section 175 duty in relation to property, information and opportunities that came to the individual's attention whilst acting as a director. A director cannot therefore avoid liability simply by resigning before exploiting a corporate opportunity. 

Recent judicial guidance

Recent decisions demonstrate the courts' continuing willingness to enforce fiduciary obligations rigorously.

In Barrowfen Properties Ltd v Patel [2021] EWHC 2055 (Ch), the High Court considered a director's awareness of circumstances giving rise to potential conflicts and emphasised the importance of exercising independent judgement where competing interests arise. The case serves as a reminder that directors must remain alert to situations capable of creating conflicts and respond appropriately when they occur. 

More recently, in Stevens v Hotel Portfolio II UK Ltd [2025] UKSC 28, the Supreme Court upheld substantial equitable remedies arising from transactions involving undisclosed interests and dishonest assistance. Whilst not principally a section 175 case, the decision illustrates the potentially significant consequences that can follow breaches of fiduciary obligations and participation in conflicted transactions. 

Practical lessons for directors

Directors should:

• identify and disclose actual or potential conflicts as soon as they arise;
• avoid assuming that a business opportunity falls outside the company's interests;
• obtain appropriate authorisation before pursuing opportunities that may create a conflict;
• ensure discussions and decisions relating to conflicts are properly documented; and
• remember that fiduciary obligations may continue after resignation.

Conclusion

Section 175 sits at the heart of a director's duty of loyalty. Although now codified in the Companies Act 2006, its interpretation continues to be shaped by the principles developed in Regal (Hastings) Ltd v Gulliver [1942] UKHL 1, Boardman v Phipps [1967] 2 AC 46, Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443 and Bhullar v Bhullar [2003] EWCA Civ 424. Recent decisions such as Barrowfen Properties Ltd v Patel [2021] EWHC 2055 (Ch) and Stevens v Hotel Portfolio II UK Ltd [2025] UKSC 28 demonstrate that those principles continue to have real significance in modern corporate disputes. 

The message remains clear: directors must remain vigilant to actual and potential conflicts of interest and should seek authorisation before taking steps that might place their personal interests, or competing obligations, in conflict with the interests of the company.