Directors - Substantial Property Transactions Flashcards
(16 cards)
What type of shareholder approval required for Substantial Property Transaction (SPT)
An ordinary resolution, either:
- Before the transaction is entered into, or
- After, if the transaction is conditional upon approval being obtained
What does s190 CA require?
Shareholder approval before (or conditional upon) any company acquisition or disposal of substantial non-cash asset to/from a director or connected person.
How is ‘substantial asset’ defined?
- Equal or less than 5k
- 100k - Automatically substantial
- 5k and up to 100k - substantial only if >10% of the company’s net asset value
How is the company’s net asset value determined?
From the most recent statutory accounts, or if none exist (e.g. newly formed company), use the called-up share capital
Who qualifies as a ‘connected person’?
- Spouse/civil partner
- Parents, children, stepchildren
- a business partner
- A trustee of a trust benefiting the director /family
- A company where the director + connected persons hold >/20% of shares
XYZ Ltd sells a property worth £109k to C (wife of a director A) NAV is £2m. Is this an SPT?
Yes - this asset is non-cash, the value exceeds £100k and C is connected person
What is required regarding holding companies?
If the transaction is with a director of the holding company or their connected person, the holding must also approve the transaction by ordinary resolution.
When is member approval not required?
Where the company is a wholly-owned subsidiary
What are some exceptions listed under s192 CA
No shareholder approval is required if:
- The transaction is in the director’s capacity as a shareholder (e.g selling their own shares)
- the transaction is in the ordinary course of business, inter-group, or by court order
What is a company enters into an SPT without approval?
- The transaction is voidable by the company, unless:
a) restitution is no longer possible
b) the company has been indemnified
c) avoidance would prejudice 3rd parties acting in good faith
What liability do directors face under s.195?
Directors and connected persons must:
- Account for any profit made
- Indemnify the company for any loss
Can the shareholders later affirm the transaction?
Yes, the arrangement can be affirmed by ordinary resolution (including the shareholding company if applicable)
What is the defence under s195(6)?
A director is not liable if they took all reasonable steps to ensure the company complied with s190?
What is the defence under s195(7)?
A director (or connected person) who had no knowledge of the contravention is not liable
Must a director disclose interest in an SPT?
Yes, but there is an exception if other directors are aware, best practices is still to declare
How does MA 14 affect conflicted directors in SPTs?
A director cannot vote or count in the quorum on board resolution to approve the transaction unless an exception under MA 14 applies
