Gifts and hospitality law tightened up

This might be said to be the media line adopted as a result of the changes in company law that came into effect on 1 October.

Following on from the Woolf Report into the ethical standards of BAE Systems in May 2008 there has been calls for Board members to lead the way in terms of code of ethics. The Report followed allegations of bribery following a high profile weapons deal.

The change in law that arrives as of 1 October is a new duty not to accept benefits from third parties. Many an FD/MD will have been invited by the supplier to a free bottle of Scotch or lunch.

The provision in detail comes in S 176(1) and affects “benefits conferred” on a director-not the director’s company for instance.

Critically something which many journalists have missed is that the new duty is not infringed if the acceptance of the gift cannot reasonably be regarded as likely to give a rise to a conflict of interest.

Accordingly the receipt of Christmas presents etc will not present a conflict if low value for instance. The government, Parliament and local government have their own rules about declarations and receipt of gifts and are open to public scrutiny.

Arguably this is not a new law but merely clarification and codification of existing fiduciary and common law in a sense-to avoid conflict situations, to declare if arisen and to act in the best interests of the company at all times.

However more positively there is not an absolute prohibition on accepting gifts-unlike case law-and in this sense it could be said the old law has been relaxed to allow for flexibility in modern times. Whether this is a positive change remains to be seen.

Doubts have also arisen as to corporate gifts-the box at Wimbledon, Lords or so forth but it is likely that excessive corporate hospitality is more likely to be caught as a “bribe” than what is “reasonable” though this will vary from sector to sector, director to director, business size and location.

What is “excessive” therefore can be open to doubt but we can advise businesses on how best to manage the issue of gifts and hospitality and how to advise directors of their corporate responsibilities.

For more on the complexities of this get in touch for our latest podcast on the same.

Add a comment | Subscribe to this discussion  | Register For legal reasons only registered users can add comments