Managing conflicts of interest on a board

Conflicts of interest are a normal part of board life. A director may have a personal interest in a contract, a relationship with a counterparty, or a role in a related entity. The point is not to pretend conflicts away but to manage them: disclose the interest, apply the correct voting rule, and record what happened. The Corporations Act gives a clear framework for doing this, and the rule that applies depends on the type of company.

Disclose the interest: section 191

Section 191 requires a director who has a material personal interest in a matter that relates to the affairs of the company to give the other directors notice of the nature and extent of the interest and how it relates to the affairs of the company, unless an exception applies. The disclosure is made to the other directors, usually at or before the meeting where the matter is considered. Disclosure is the first step in every case, regardless of company type.

Record an ongoing interest: section 192

Where an interest is ongoing, section 192 lets a director give a standing notice to the other directors about the nature and extent of the interest. The standing notice operates until the director changes it or ceases to hold office, which saves repeating the same disclosure for every related matter. The standing notice is recorded in the register of interests.

Apply the right voting rule: section 194 versus section 195

After disclosure, the board applies the voting rule for its entity type, and this is where proprietary and public companies differ. For a proprietary company, section 194 is a replaceable rule: a director who has disclosed an interest under section 191 may vote on the matter and be counted in the quorum, unless the constitution displaces the rule. For a public company, section 195 is mandatory: a director with a material personal interest in a matter being considered at a board meeting must not be present while the matter is considered and must not vote on it, unless an exception applies, such as a resolution of members under section 195(4). Applying the wrong rule is a real risk, so the board needs to know which company type it is and whether the constitution changes the default.

Record what occurred

The minutes are the evidence that conflicts were managed. They record the disclosure, the rule applied, and the action taken: in a public company, that the director left the meeting and did not vote; in a proprietary company, whether the disclosed director remained and voted. The register of interests is updated so the board has a current picture for future matters.

Common pitfalls

The frequent mistakes are disclosing the existence of an interest without its nature and extent, treating a proprietary company and a public company the same way, and failing to record the action taken in the minutes. A consistent process, supported by a current register, avoids each of these.

How Quorum helps

Quorum reads the entity type and the constitution settings, so it applies the section 194 or section 195 rule from the data rather than leaving it to memory. It maintains the register of interests as append-only history, links disclosures to the matters they affect, prompts the board where a conflict arises, and records the action taken in the minutes. This helps you comply with sections 191 to 195 and enhances governance. The company and its directors remain responsible for compliance.

Part of the Cohiva platform

Quorum is part of the Cohiva platform. Learn more at [www.cohiva.com](https://www.cohiva.com). For resolutions that need signing, [Cohiva Sign](https://www.cohiva.com) provides e-signatures on board resolutions.