Substantial Property Transactions Flashcards
(13 cards)
What is the general rule on Substantial Property Transactions?
A company may not enter an arrangement whereby either:
- The company acquires a substantial non-cash asset from a director/connected person.
OR:
- The company sells/transfer such asset to a director/connected person
Unless members approve transaction by OR.
What is required if a director of a holding company wants to complete an SPT with a subsidiary?
The transaction must be approved by a resolution of the holding company.
When does member’s approval need to be obtained, for the purposes of conducting an SPT?
Either:
- Before transaction is entered into or;
- After transaction has been agreed, provided that transaction is conditional upon subsequently gaining members’ approval.
If a company is entering into a series of non-cash transactions, is member approval required for each transaction?
No, the assets are aggregated together so that the members only need to give approval once.
What is a “substantial” asset?
A substantial asset is one which either:
1- Exceeds 10% of the company’s asset value AND is worth more than £5000, OR
2- Exceeds £100,000 (even after aggregated together, if applicable).
How is a company’s total asset value calculated, for the purposes of deciding whether they are “substantial”?
Either:
- By reference to the company’s latest statutory accounts; or
- if no statutory accounts, by reference to the company’s called up share capital.
What is a ‘non-cash asset’?
A ‘non-cash asset’ is ‘any property, or interest in property, other than cash’ e.g. car, shares, interest in land etc.
Does a loan count as a non-cash asset?
No as this is still cash
Who counts as a ‘person connected with the director’?
- Members of the director’s family,
- ie. spouse, civil partner, children, stepkids,
- any person who director lives with in enduring family relationship and any under 18 kids/stepkids this person has that still lives with them.
NOTE: Siblings not included
2, Body corporate with which director or connected person has major interest/voting powers.
- Trustees of trust of which director or person connected to director are beneficiaries.
- A (business} partner of either director or person connected with director.
- A firm with legal personality in which director is partner or any of the partners is connected to director.
When is members’ approval not needed for an SPT?
It is not needed if:
- Director of connected person is acting in capacity as a shareholder of company.
- Contract is between holding company and wholly-owned subsidiary, or between 2 wholly owned subsidiaries of same holding company.
- Company is in administration.
- Transaction relates to something director is entitled to under their service agreement.
- Company is not UK-registered.
What is the effect of failing to obtain shareholder approval for SPT’s?
The transaction will be voidable and the company can request to have it reversed, at its request.
How can you avoid the effects of failing to obtain members’ approval for SPTs?
You can get the members’ to affirm the transaction by OR after it has been entered into (similar to ratification). If they do this within a reasonable period, the transaction cannot then be avoided.
Can director’s or connected person’s keep gains from SPT’s for themselves?
No they can’t, regardless of whether members’ approval is obtained or not. Any:
- director or connected person AND
- director who authorised transaction
MUST account to company for profits and must jointly and severally indemnify company for any losses, as a result of the transaction
