Transactions with directors - substantial property transactions

Question 1

what is an SPT and what are the stages to identifying an SPT?

Answer 1

an SPT is when the company is buying or selling a non-cash asset from D/connected person

1. Is it a non-cash asset? i.e. loans not inc.
2. Is it substantial?
3. Is it with a D or a person connected to D?
4. Does an exception apply?

Question 2

when will a transaction be ‘substantial’?

Answer 2

if the value more than:
o £100k; or
o 10% of the company’s net assets and at least £5k

Question 3

when will a person/entity be ‘connected’ to D?

Answer 3

NB: this applies to Ds of a company and Ds of a holding company

Family members:
 Spouse/CP of D
 Unmarried partner living with D in a long-term relationship
 D’s children or step-children
 D’s parents
 NB: grandparents, siblings, aunts/uncles, nieces/nephews are not inc.

Company D is connected with:
 D (+ D’s connected people) own at least 20% of the share capital
 D (+ D’s connected people) have more than 20% of the voting rights

Trustees of a trust D is connected with:
 D and/or a connected person are beneficiaries of the trust

Business partners of D or connected person

Question 4

what are the main exceptions and what is the effect if one applies?

Answer 4

The transaction will still be an SPT, but approval will not be required if:
 The company is not registered in the UK
 The company is a wholly owned subsidiary
 The transaction is part of winding up or administration

Question 5

what is the effect of the board doesn’t obtain approval?

Answer 5

transaction is voidable & the company can choose to rescind the contract (undo), unless:
o Rescission is impossible (i.e. property has been disposed of)
o The company has been indemnified for the loss
o A bona fide purchaser has acquired the property
o SHs have retrospectively approved the transaction by OR

Question 6

explain liability (i.e. who, how and for what) when an unapproved SPT takes place

Answer 6

Irrespective of whether the company rescinds, the following are joint + severally liable to account for any gain made / indemnify for any loss the company suffers:
o D + any D who authorised the transaction
o Any connected person