Q&As

How can joint venture shareholders deal with director conflict of interest issues in a shareholders' agreement rather than simply relying on a directors' duty to avoid conflicts of interest?

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Published on LexisPSL on 26/04/2017

The following Corporate Q&A provides comprehensive and up to date legal information covering:

  • How can joint venture shareholders deal with director conflict of interest issues in a shareholders' agreement rather than simply relying on a directors' duty to avoid conflicts of interest?

Directors owe various duties to the companies of which they are directors. Some of these duties will have particular application to directors of a joint venture company. A common issue that arises in a joint venture is that directors appointed by a joint venture shareholder may well find themselves in a situation where there is a potential conflict between their duties as director of the joint venture company and their loyalty to their appointing shareholder of which they may be an employee (or an employee of a group company) or even a director. For further information, see Practice Note: Corporate joint ventures—directors' duties and shadow directors.

Potential directors' conflicts of interest may arise where a joint venture director is required to vote upon a matter upon which its appointing shareholder has an interest. For example, where the joint venture company enters into a contract or arrangement with a joint venture shareholder (or a member of its group), then the director appointed by such shareholder could find himself in a potential position of conflict of interest. This scenario often arises in infrastructure projects, where a sub-contractor (or member of its group) to the joint venture company will also become a shareholder in the joint venture company.

Where such potential situation of conflict arises, despite the directors being subject to a duty to avoid a conflict of interest,

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