Directors to declare their interest in contracts


Non-declaration of directorโ€™s interest in contracts is a common issue encountered when reviewing directorsโ€™ resolutions in the course of legal due diligence for M&A or IPO exercise.

๐—–๐—ผ๐—บ๐—บ๐—ผ๐—ป ๐˜€๐—ฐ๐—ฒ๐—ป๐—ฎ๐—ฟ๐—ถ๐—ผ

X is a director and shareholder of Company A as well as Company B.

Company A and Company B enter into a contract.

๐——๐—ถ๐˜€๐—ฐ๐—น๐—ผ๐˜€๐˜‚๐—ฟ๐—ฒ ๐—ผ๐—ณ ๐—ฑ๐—ถ๐—ฟ๐—ฒ๐—ฐ๐˜๐—ผ๐—ฟ’๐˜€ ๐—ถ๐—ป๐˜๐—ฒ๐—ฟ๐—ฒ๐˜€๐˜

Section 221(1) of the Companies Act 2016 (โ€œ๐—–๐—”โ€) requires every director of a company who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company to, as soon as practicable after the relevant facts have come to the directorโ€™s knowledge, declare the nature of his interest at a meeting of the board of directors.

In the scenario above, X must declare his/her interest in the agreement to the board of directors of Company A and Company B pursuant to section 221(1) of the CA. Contravention of this section is an offence under the CA. In practice, the declaration is typically set out in the respective directorsโ€™ circular resolutions of Company A and Company B passed to approve the execution of the agreement.

There are exceptions provided under subsections 221(2) and 221(3) to the requirement for declaration of directorโ€™s interest in contracts.

๐—ฉ๐—ผ๐˜๐—ถ๐—ป๐—ด ๐—ฏ๐˜† ๐—ถ๐—ป๐˜๐—ฒ๐—ฟ๐—ฒ๐˜€๐˜๐—ฒ๐—ฑ ๐—ฑ๐—ถ๐—ฟ๐—ฒ๐—ฐ๐˜๐—ผ๐—ฟ

A director must not vote on a contract he/she is interested in unless any of the exceptions in section 222(2) of the CA applies.

The prohibition does not apply to a private company which is not a subsidiary to a public company.

Therefore, in the scenario above, if both Company A and Company B are private companies which are not subsidiaries to any public companies, X may vote on the directors’ resolutions of Company A and Company B in respect of the contract.


This post was first posted on Linkedin on 6 May 2022.

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