Conflict of interest in the business sector

(Last Updated On: November 25, 2022)

 

Conflict of interest arises in a situation in which a person is in a position to derive personal benefit from actions or decisions made in their official capacity be it agreements or even financial transactions.

To guard against such happenings, the Companies and Other Business Entities Act has set out scenarios and resolution methods to be adopted so as to amicably remedy such conflicts and the effects thereafter.

In terms of section 57 of the Companies and Other Business Entities Act, a director, a manager or even any official within the structures of a company when faced or upon realisation of an existing personal conflict arising out of their exercise of duty, they have an obligation to disclose such conflict to the board.

Non-disclosure of such conflicts constitutes dishonesty to which goes to the root of the duty of care and business judgment rule, the duty of loyalty and even the duty to disclose conflict itself and set out under section 57 of the Act.

In the course of remedying instances where conflict is availed, any transaction that is found to be contrary to the provisions of section 57 of the Act shall be voidable at the option of the registered business entity concerned.

Any such voidance referred above, shall be without prejudice or harm to the rights of a third party which would have been acquired in good faith and without knowledge of or the participation in line with the contravention or the existence of conflict.

In terms of section 58 (2), a registered company or business entity concerned can also assert and a competent court may exercise power to order other remedies of the kind referred to in other sections of the act.

The person responsible or the one having conflict shall then be made liable to account for and transfer to the registered business whatever gain they would have they would have enriched themselves with from the act or transaction giving rise to the conflict.

The official responsible shall also be liable to indemnify and the registered business concerned for any loss or damage that it would have incurred resulting from the conduct of the official be it an official act or transaction.

In conclusion, it is almost undeniable that the practice in public companies where the directors are obliged to keep to date a register of conflicts were to be adopted in private limited companies, instances of third parties being victimised resulting from arising conflict through corporate officials’ conduct within a registered business entity in their exercise of duty.

Such adoption will also require that corporates to ensure the enforcement through policy so as to yield results.

 

 

Fungai Chimwamurombe is a registered legal practitioner and Senior Partner at Chimwamurombe Legal Practice and can be contacted for feedback at fungai@zenaslegalpractice.com and WhatsApp 0772 997 889. Theophilus Mubemi is a  is a Legal Intern, email address is theomubemi@gmail.com, 0717936310

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