Can A Director Act For Two Companies?

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Can a director act for two companies? If there is a conflict of interest, would that not compromise his services rendered to the company? What does the law say?

The law states that¹:

“A director or officer of a company shall not, without the consent or ratification of a general meeting –

use of the property of the company;
use any information acquired by virtue of his position as a director or officer of the company;
use his position as such director or officer;
use any opportunity of the company which he became aware of, in the performance of his functions as the director or officer of the company; or
engage in business which is in competition with the company,

to gain directly, or indirectly, a benefit for himself or any other person, or cause detriment to the company.”

What it essentially means is this: In the event (in a transaction) a conflict of interest arise and the Director who is privy to the conflict (i.e. he would reap personal gain out of the transaction based), he should disclose/ make known the situation to the rest of the members of the company so the company can come to an informed decision as to whether to continue pursuing the matter and to allow the particular director to reap personal profit or vice versa.

Why is there such a rule in place?

The rule is put in place for the protection of the person to whom the duty is owed. Thus the company is entitled to the undivided loyalty of its directors; beneficiaries are entitled to the unpaid services of their trustees; the client is entitled to the services of his solicitor who may not charge more than he is legally entitled to, and must not put himself into a position where he may owe conflicting duties to different clients².

director act for two companies — Can A Director Act For Two Companies?

Does it mean that a director cannot act for two companies?

No. Contrary to that, the law (such as the one pointed out above) states while a director has a duty not to place himself in a position where his duty to one company are his own interest are in conflict, this does not mean that he is precluded from holding directorships in two companies. As noted by the court in Boulting v Association of Cinematograph, Television and Allied Technicians³:

“Directors … may sometimes be placed in a position that, though their interest and duty conflict, they can properly and honestly give their services to both sides and serve two masters to the great advantage of both. If the person entitled to the benefit of the rule is content with that position and understands what are his rights in the matter, there is no reason why he should not relax the rule. … To sum up the position, it is clear that the person entitled to the benefit of this positive rule is the person who is protected by it, but he, and he alone, can in proper circumstances relax it … It cannot be used as a shield by the person owing the duty.”

Simply put, if his personal interest were to triumph over that of his company in one of the company’s transactions (i.e. there is a conflict of interest between the two company where he is appointed as a director), it is for the company to decide (not him) whether to allow the director to reap the benefit for himself stemming from such a transaction.

Therefore, to answer our question- yes, a director can act for two different companies, provided that he is able to act in the best interest of both companies without compromising the service he provides for the two companies.