Director with an interest conflicting with the company (Art. 272 LGS)

Article 272 of the General Companies Law governs the director's conflict of interest: when he has an interest conflicting with that of the company, he must disclose it to the board of directors and the supervisory board and abstain from taking part in the deliberation, under penalty of liability under Article 59.

What article 272

Article 272 imposes two duties on a director facing a conflict of interest: to disclose the situation and to abstain from participating in the decision.

Source: Law 19,550, Art. 272 — InfoLEG (updated official text)

Commentary

This is a specific application of the duty of loyalty under Article 59: faced with a personal interest opposed to that of the company, the director cannot be both judge and party. He must disclose the conflict and withdraw from the deliberation and vote on that matter.

Failure to comply gives rise to liability for damages (Art. 59) and may taint the decision adopted with his participation. Good practice is to record in the minutes the disclosure of the conflict and the director's abstention.

Distinctions often confused

Practical impact

Documenting the conflict of interest and the abstention in the minutes protects the director and the validity of the decision. Voting while in conflict exposes him to liability and to a challenge of the resolution adopted.

Frequently asked questions