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Boardroom conflicts of interest lead to legal dispute

A conflict of interest has led to a lengthy prohibition from holding a director's position.

A recent case before the Federal Court has highlighted the legal issues members of a board of directors can run into when they fail to meet their legal obligations around disclosing information.

The case arose following the collapse of a property company, and an alleged breach of duty when the board of the business supported changing the constitution of a trust.

This revision of the trust's constitution allowed for the organisation to make a $33 million payment to the trust's founder, who was also a board member of the company in question. This action led to a substantial loss of finances for the trust.

Because the man did not declare a conflict of interest or abstain from voting on this decision, the Australian Securities and Investments Commission took legal action against him. As a result, he was fined and also disqualified from holding a directorship for 15 years.

Similar charges were also successfully brought against the Chairman of the board and two further directors, who both received fines and disqualifications of between two and four years as a result of this action. The Federal Court reached this decision because these individuals had failed to respond accordingly to this conflict of interest, despite being aware that this discrepancy existed.

The parties involved do have the option to appeal this decision, so there may be further legal action as a result of this verdict.

This isn't the only case in recent months to highlight this danger. Earlier this year, a case arose when two men failed to have their disqualification from holding a directorship overturned by the Administrative Appeals Tribunal of Australia. 

If you want more information on the legal responsibilities that come with running a business, including your duties as a director, it is important to seek the legal advice of a commercial lawyer.