BLP

Question 1

Who are director’s accountable to?

Answer 1

the COMPANY, not the shareholders directly

Question 2

How are decisions broken down (four categories)?

Answer 2

Decisions’ requiring shareholder approval -> CA 2006

Board usually free to make decisions on behalf of company on all other matters (MA3)

Board can delegate day-to-day running decisions and responsibilities to director or to a committee (MA5)

BUT, director’s actions and powers are restricted and regulated by CA 2006.

Question 3

What is a DE JURE director? What are the requirements?

Answer 3

Director validly appointed at law

Ltd = min 1️⃣
Plc = min 2️⃣

No max by default - could add in Articles

s155(1) CA: Must have at least one director who is a natural person.

🔞Must be 🤏at least 16

FIDUCIARY duties = APPLY ✅

Question 4

What is a DE FACTO director?

Answer 4

Assumed to act as director, not validly appointed

FIDUCIARY duties = APPLY ✅

Question 5

What is a SHADOW director?

Answer 5

s251(1) CA - person in accordance with whose directions or instructions directors of company are accustomed to act

Person may seek to exert influence over board without being appointed as director, in effort to avoid duties imposed on directed under CA and Common law - hence this provision.

Professional advisors ❌= shadow directors, even if directors follow their advice

Most duties of CA and Insolvency ACT apply equally to shadow directors.

Question 6

What is an Executive Director?

Answer 6

Director appointed to executive office - will generally spend all/majority of working time on business - both officer and employee

CA 2006 does not differentiate between this and NED - but practically there is a distinction

CA duties/restrictions/powers apply to all directors, whether executive or NED.

Question 7

What is a NED?

Answer 7

Officer of company but not an employee - do not take part in day-to-day running - provide independent guidance & advice - protect shareholders’ interests

CA duties/restrictions/powers apply to all directors, whether executive or NED.

Question 8

What is an Alternate Director?

Answer 8

Usually either fellow director of company or someone who has been approved by resolution of board of directions - to take place of director where one/more absent.

Alternate has voting power of absent director.

Rare!

Question 9

What is a Secretary?

Answer 9

Officer of company who deals with company’s legal administrative requirements

✅required in public company
🗳️Optional in private company

Role = keep company internal books up-to-date, product board minutes, and GM meetings, make sure all necessary filings made to CH.

❌DO NOT take decisions on behalf of Company ❌

If no sec, any director can fulfil role.

Question 10

What is required to APPOINT directors?

Answer 10

MA17: Ordinary Resolution OR Board Decision (latter more usual as easier)

BUT company may choose to add bespoke provisions in Articles.

Question 11

What are the rules around service contract i.e. availability of contracts, how terms are decided? Exception to general rule (s188)?

Answer 11

Executive director = employee + officer of Company - would expect written contract of employment (service contract)

📖s228 - Company has obligation to keep directors’ service contracts (or memoranda of terms where contracts not in writing) at its registered office for inspection by members

MA19 : Terms of individual director’s service contract, including remuneration = for board to determine

General Rule: Only directors approval through BR required for director’s service agreement

BUT note,
Shareholder approval required for LONG-TERM SERVICE CONTRACTS ( 📖s188 CA 2006)

Question 12

What are the requirements around publicity of directors and secretaries etc?

Answer 12

Company must maintain register of directors and secretaries + keep these registers at registered office

Each company must notify CH Registrar of changes re directors or secretaries using (AP01 or AP03 form respectively)

CH information = open to inspection by the public - and the register kept at registered company address must be open for inspection by any member without charge or any person on payment of a fee.

Question 13

What must Company’s:
1. Register of Directors
2. Register of Secretaries
contain?

Answer 13

📖s163(1) CA 2006 specifies that company’s register of directors must contain:

Name + any former name

Service Address - residential address or company’s registered office.
NOTE: individual directors must provide residential address under 📖s165 CA, but this will be kept on separate, secure register - not open to public inspection.

Country/State resident in

Nationality

Business occupation (if any)

DOB

Secretary register just needs: name + former name, address

Question 14

What are the requirements re annual accounts (s412 and 413)?

Answer 14

📖s412 - Information about directors’ benefits: remuneration - certain information must be included in company’s annual accounts e.g. directors’ salaries, bonus payments and pension entitlements; compensation paid to directors and past directors for loss of office

This extends not just to directors but also payment made to, or receivable by, a person CONNECTED TO such director or body corporate controlled by the director.

📖s413 - Information on advances and credits given by company to its directors and guarantees entered into by company on behalf of its directors - applies to person who was director at any time during applicable financial year.

Question 15

How does company REMOVE director?

Answer 15

📖s168(1) CA 2006 - company may by ORDINARY RESOLUTION remove a director before expiration of their period of office

📅SPECIAL NOTICE (28 clear days) is required of such a removal resolution - 📖s168(2)

Not possible for board to remove director - unless articles specifically provide for this.

Note: directors who are also shareholders are allowed to vote in capacity as shareholders on ordinary resolution to remove them.

Question 16

VACATION from office - what are the ways individual could cease to be a director?

Answer 16

Resignation by Notice - Director can tender letter of resignation (MA18(f)). Usually board meeting then held to pass BR accepting letter of resignation.

Automatic Termination - MA18 - person ceases to become a director as soon as:

1. DISQUALIFIED - under CDDA 1986, court may ake disqualification order against person preventing them, unless they obtain leave from court, to be a director, liquidator, received or in any other way directly or indirectly involved in promotion, formation or management of company. Groups for disqualification include fraudulent or wrongful trading or persistent breaches of company law - period of disqualification = 🤏max 15 years - criminal offence to participate directly/indirectly in corporate management without leave of court within this time;
2. SUBJECT OF INDIVIDUAL VOLUNTARY ARRANGEMENT (or similar);
3. BANKRUPT; or
4. Registered medical practioner treating director states in writing to company that director has become PHYSICALLY/MENTALLY INCAPABLE OF ACTING AS DIRECTOR and 📅WILL REMAIN so for THREE MONTHS

Retirement by rotation - MA for public companies require retirement and appointment of directors by members 📅every 3 years - all directors of listed companies are also subject to 📅annual re-election

Question 17

What must be filed when a director leaves office?

Answer 17

Company must update company’s register of directors internally and also give notice to CH by filing TM01 Form.

Question 18

Where are director’s duties set out?

Answer 18

📖ss171-177 CA 2006 - codified in CA, but developed by common law and equity + CA should be interpreted and applied in same way as common law + equity rules.

Question 19

General rule on Director’s duties? Exception?

Answer 19

General duties of directors = owed by a director to COMPANY - any breach = wrong to company

Except note, when a company is in financial difficulty, position changes and directors’ duties shift to the protection of creditors.

Question 20

What are the SEVEN director’s duties we look at (s171-177)

Answer 20

1. Duty to act within powers
2. Duty to promote success of company for benefit of members as a whole
3. Duty to exercise independent judgment
4. Duty to exercise reasonable care, skill and diligence
5. Duty to avoid conflicts of interest
6. Duty not to accept benefits from TPs
7. Duty to declare any interest in a proposed transaction.

Question 21

Duty under 171?

Answer 21

Duty to act within powers

Duty 1: Duty to act within Company’s constitution = Articles and decisions taken in accordance with Articles.

Duty 2: Duty to exercise powers for purposes for which conferred i.e. must not use powers for improper purpose (e.g. personal gain)

Question 22

Duty under s172?

Answer 22

Duty to promote success of Company for benefit of members as a whole

Must act in a way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.

Success = long-term increase in value

Duty owed to company, not to any TP

In exercising duty, director required to have regard to non-exhaustive factors:
Likely long-term consequences
Interests of company’s employees
Need to foster company’s business
relationship w
suppliers/customers/others
Impact of company’s operations
on community and environment
Desirability of company
maintaining reputation for high
standards of business contract;
and
Need to act fairly between
members of company

Often Companies now add statements on board minutes clearly stating that they have considered the s172(1) matters - in fact certain companies (including all public companies) are required to make such a statement in their accounts about how they have met duty over the year.

Question 23

Non-exhaustive list of SIX factor for directors to consider in line with their s172 duty (long-term success)?

Answer 23

In exercising duty, director required to have regard to non-exhaustive factors:
1. Likely long-term consequences
2. Interests of company’s employees
3. Need to foster company’s business
relationship w suppliers/customers/others
4. Impact of company’s operations
on community and environment
5. Desirability of company
maintaining reputation for high
standards of business contract;
and
6. Need to act fairly between
members of company

Question 24

Duty under s173?

Answer 24

Duty to exercise Independent judgement
Must exercise powers independently, and not fetter future exercise of that discretion other than in accordance with s173(2) i.e. re rule around acting for creditors.

Duty ❌NOT infringed by director acting:
In accordance w agreement entered into by company that restricts future exercise of discretion by its directors; or
In way authorised by company’s constitution

Individual nature of this duty - can rely on advice from others, but must make own judgments, not just blindly follow others without considering interests of company.

Question 25

Duty under s174?

Answer 25

Duty to exercise reasonable care, skill + diligence
This is assessed objectively and subjectively
Required level of skill, care and diligence which would be exercised by reasonably diligent person with:
General knowledge, skill and experience that may reasonably expect of someone in their role; and
The general knowledge, skill and experience of that director

⭐so, general k/s/e = objectively expected of director in position, and can then be raised higher if particular director has any special s/k/e ⭐

Question 26

Duty under s175?

Answer 26

Duty to avoid conflicts of interest
Directors must ‘avoid situations in which they have, or can have, a director or indirect interest that conflicts, or possibly may conflict, with interests of the company’ — in particular applies to exploitation of any property, information or opportunity.

❌Duty NOT infringed it:
A. Situation cannot reasonably be regarded as likely to give rise to conflict of interest; or
B. Conflict arises in relation to a transaction with the company (i.e. transaction between director and company); or
C. Conflict arises in relation to matters which have been authorised by directors.

🧠note - situation B = falls under duty of disclosure (s177) for transparency purposes but are not prohibited.

Question 27

Duty under s176?

Answer 27

Duty not to accept benefits from TPs
Must not accept benefit conferred on them:
By reason of being director; OR
By reason of doing or not doing anything as director

❌Duty NOT infringed if:
Acceptance of benefit cannot reasonably be regarded as likely to give rise to conflict.

Other directors cannot authorise an arrangement under this section. No provision allowing them to do so. Would be possible for shareholders to approve the director’s proposed action in advance or for ratification under s239.

Question 28

Duty under s177?

Answer 28

Duty to declare any interest in a proposed transaction
Any director interested in a proposed transaction with the company must declare the nature and extent of their interest to the other directors (i.e. this covers direct and indirect interests.

Indirect interest ~ interest through a spouse or company in which they are a member. Director does not have to be party to the transaction for s177 to apply ⚠️

Must declare interest in proposed transaction 📅 before the transaction is entered

Declaration can be at BM or writing in advance of BM - directors could also give one-off general notice of interest - if director declares interest by written notice rather than director’s meeting, must ensure sent to all directors either electronically or in paper form.

Under s185, a director can give notice that they will always be considered interests in any transaction/arrangement with a specified party - e.g. if director has interest in specified body corporate, or is connected to special person.
❌NOT required to make s177 declaration (s177(5) and (6) set this out) where:
1. Director not aware of interest/ transaction/ arrangement (director treated as aware if ought reasonably to have been);
2. interest cannot reasonably be regarded as likely to give rise to conflict or interest or other directors know about/ought to have known about conflict or interest; OR
3. Conflict arises because concerns service contract and their service contract has been or will be considered by board, or committee of board, of directors.
~ ~ ~

S177 and MA14 - MA14 says director who is interested in transaction/arrangement with company cannot vote on or count in quorum of BR in respect of that transaction/arrangement. However, MA14(2) and (3) allow conflicted director to count in quorum and vote if:
1. Company disapplies (each time conflict arises) MA14(1) by ordinary resolution;
2. Director’s interest cannot reasonably be regarded as likely to give rise to conflict of interest; or
3. Director’s conflict arises from permitted cause (defined in MA14(4)

Alternative would be to remove MA14 permanently under s21 CA and replace it with article expressly permitting directors interested in transaction or arrangement with company to vote and count in quorum on BR to approve transaction/arrangement.

Directors also required under s182 CA to disclose interests in existing transactions or arrangements entered into by the company.

Question 29

What are the remedies available for breach of directors’ duties?

Answer 29

📖s178 CA = consequences of breach of directors’ duties = same as for breach of corresponding common law or equitable principles. With the exception of the duty to exercise reasonable care, skill and diligence, statutory duties are enforceable in the same way as fiduciary duties owed by directors to their company:

s174 (duty of care, skill and diligence) = Damages
S171-173 and 175-177 (i.e. all other duties other than s174 duty) = Injunction, Setting aside transaction, restitution and account of profits, restoration of company property, damages.

Question 30

Can shareholders approve director’s proposed action in advance?

Answer 30

Shareholders may be prepared to approve director’s proposed action in advance, even though would otherwise represent a breach of general duties set out in 171-177 CA
HOWEVER, cannot approval unlawful acts in this way

Authorisation = only effective if been full disclosure by directors so that shareholders properly aware of details of action and can make informed decision based on that transparency.

Question 31

Can shareholders RATIFY action of director that constituted a breach of duty?

Answer 31

Shareholders can by ordinary resolution, subject to Articles requiring higher majority or unanimity - ratify (i.e. approve after breach):
1. Negligence
2. Default
3. Breach of duty
4. Breach of trust

⚠️If director holds shares, any votes to ratify their breach which attach to shares held by them or held by any person connected to them (e.g. spouse, children, parents, company which they control) will be disregarded (s239(4)).

🧠 Unlawful acts can never be ratified (e.g. declaring dividend when no distributable profits are available).

NOTE also, in insolvency situation, shareholders cannot ratify a director’s breach of fiduciary duty as directors owe their duties to creditors, not shareholders, once company insolvent.

Question 32

What are the THREE regulated transactions with directors that require approval of company’s shareholders to be valid?

Answer 32

THREE regulated by CA 2006 and require approval of Company’s shareholders in order for transaction to be valid:
1. Directors’ long term service
contracts (ss188-189 CA 2006)
2. Substantial property
transactions (ss190-196)
3. Loans and related transactions
with directors (s197-214)

** real risk of conflict between interests of directors and shareholders in these transactions - if directors proceed without obtaining shareholder approval, they would
(1) breach their general duties
under ss171-177 and
(2) breach requirements re
Transactions with Directors

Question 33

What is required for any LONG-TERM SERVICE CONTRACTS?

Answer 33

Shareholder approval by ordinary resolution required for any directors’ service contract which is, or may be for a 📅guaranteed period IN EXCESS OF TWO YEARS (i.e. ‘guaranteed term’).

NOTE: Guaranteed term applies to either:
A period during which contract is to continue other than at instance of company (i.e. director in control of how long contract continues) AND during this time, company either cannot terminate contract or can only terminate in specific circumstances (s188(3)(a)(ii)) OR
Period of notice to be given by the company (s188(3)(b) OR
Will also apply to aggregate of any periods covered by s188(3)(a) or (b).

If director is also director of any holding company, the shareholders of holding company will also need to give approval.

Question 34

What is the exception to the general rule around approval of Long Term Service Contracts?

Answer 34

EXCEPTION approval will NOT be required by members of any company which is a wholly owned subsidiary of another company

Question 35

What is the impact of non-compliance?

Answer 35

If company agrees to provision, consequences =
1. Provision will be void to extent
contravenes under s189 CA 2006;
and
2. Contract will be deemed to
contain a term entitling company
to terminate it at any time by
giving reasonable notice.

Question 36

Are director’s required to disclose interest in service contract under s177 (i.e. duty to declare any interest in proposed transaction)?

Answer 36

NO - S177 - director not required to disclose interest in the service contract - although in practice likely would be safe. MA14 means the director cannot vote/count in quorum on any board resolution relating to the contract.

Question 37

Who has inspection rights of directors’ service contracts?

Answer 37

S288 members have inspection rights of all directors’ service contracts - company must keep copy or memoranda of terms (where not in writing) including any variations at company’s registered address for 📅 AT LEAST 1 YEAR DURING AND FROM DATE OF TERMINATION OR EXPIRY OF CONTRACT for members to inspect.

S229 - members have right to inspect service contract(s) for free, or request copy at charge.

Question 38

What are the requirements where approval of Long-service Contract at GM?

Answer 38

Where ordinary resolution is to be passed at general meeting - s188(5) requires a memorandum setting out proposed terms of contract be made available for inspection both:
1. At co’s registered address for
📅 NOT LESS THAN 15 DAYS
ending
with date of meeting; and
2. At the meeting itself.

Question 39

What are the requirements where approval of Long-service Contract will be via written notice?

Answer 39

if written resolution used - memorandum just needs to be sent/submitteed to ever eligible member 📅 at or before time proposed resolution set or submitted to members.

Question 40

What is a SUBSTANTIAL PROPERTY TRANSACTION?

Answer 40

📖s190: substantial property transactions involve an acquisition or disposal by a director of a company or a director of a company’s holding company (or a person connected to such directors) of a substantial non-cash asset from or to the company.

Question 41

Are substantial property transactions PERMITTED?

Answer 41

These transactions ARE PERMITTED provided have shareholder approval by way of 🤏ordinary resolution - must be made 📅before the transaction or 📅after, provided shareholder approval made condition of sale

Question 42

What must you ask yourself re Substantial Property Transaction?

Answer 42

Q1 ⚡ Non-cash asset = property other than cash e.g ✅property

Q2⚡ substantial (s191):

    Asset worth 🤏£5000 or less is NOT 
    a substantial asset

    Asset worth 🤏£100,000 IS a 
    substantial asset

    🤏>£5000 but less than £100,000 is 
    if 🤏worth more than 10% of Co’s 
    net asset value

NOTE: If Co just incorporated, no accounts yet prepared, net asset value = amount of called up share capital (i.e. unpaid)

Q3⚡ Who Involved?
1. Director of Co
2. Director of Hold Co
3. Connected Persons (s252-254
CA 2006) - key categories:
A. Members of Director’s Family
: spouse, CP, parents, children,
step-children {Bros/ Sis/
Grandparents/ Grandchildren
/Uncles/Aunts not
connected persons}
B. Bodies Corporate:
companies in which director
(and other persons
connected with them) hold
🤏at least 20% of shares
C. Business Partner of director,
or those connected with them
D. Trustees of Trust -
beneficiaries of which
included director or
connected persons.

⚡ Holding Co: transaction between Co and director of Co’s holding Co or person connected to director of holding Co, hold co will also need to approve transaction by an ordinary resolution of its shareholders.

Question 43

What are exceptions to the general rule re Substantial Property Transactions?

Answer 43

Exceptions:
1. Approval NOT required by members of any company which is a wholly-owned subsidiary of another company.

2. s192 List - transactions within list do NOT require approval:
   Exception for transactions with
   members or other group
   companies
   Approval is not required under
   section 190 (requirement of
   members’ approval for substantial
   property transactions)—

            (a) for a transaction between a 
            company and a person in his         
            character as a MEMBER of that 
            company, or
            (b) for a transaction between
            — 
            (i) a holding company and 
            its wholly-owned subsidiary,         
            or
            (ii) two wholly-owned 
            subsidiaries of the same 
            holding company.

Question 44

What is the main remedy for not getting correct approval for Substantial property transaction?

Answer 44

⚒️ Remedies

Transaction VOIDABLE at instance of company, Unless:
a. Restitution no longer possible
b. Company been indemnified for loss/damage suffered; OR
c. Rights acquired in good faith by TP would be affected by avoidance

NOTE: director(s) involved, including those that authorised the transaction (and those persons so connected under s195(4) = LIABLE to account to the company for any profits made and to indemnify the company for any loss incurred s195(3) CA

But, arrangement can be affirmed by shareholders of Co and holding Co (where relevant) by ordinary resolution within a reasonable period. If transaction affirmed, arrangement may no longer be avoided under s195 CA

Question 45

What are the TWO defences to failure to obtain proper permission of a substantial property transaction?

Answer 45

🛡️ Defences

📖s195(6): Director will NOT be liable if can show took all reasonable steps to ensure company’s compliance w s190 if substantial property transaction between company and person connected with director

📖s195(7): Connected person (if relevant) and any director who authorised transaction will not be liable if can show they have no knowledge of the circumstances constituting the contravention.

Question 46

Requirement re substantial property transactions under s177?

Answer 46

s177(1) - director would need to disclose NATURE and EXTENT of interest in board

s177(6)(b) - could argue not need to formally declare interest if other directors already aware - in practice likely would so documented in board minutes.

MA14(1): Any interested director will not be permitted to vote on board resolutions to approve contract and authorise signatory. They cannot count in quorum for board resolutions regarding contract either.

Question 47

**

Are company LOANS to directors, holding co directors and connected persons permitted?

Answer 47

Company loans to directors , holding co directors and connected persons = PERMITTED but may also be subject to requirement of shareholders’ ordinary resolution. CA restrictions apply to

Question 48

What are the FOUR different types of transactions we consider re loans/related transactions with directors?

Answer 48

LOANS - co lends money to director

QUASI-LOANS - 📖s199 - A “quasi-loan” is a transaction under which one party (“the creditor”) agrees to pay, or pays otherwise than in pursuance of an agreement, a sum for another (“the borrower”) or agrees to reimburse, or reimburses otherwise than in pursuance of an agreement, expenditure incurred by another party for another (“the borrower”)—
(i) on terms that the borrower (or
a person on his behalf) will
reimburse the creditor; or
(ii) in circumstances giving rise to
a liability on the borrower to
reimburse the creditor.
E.g. Co agrees to pay off debt owed by the director to TP on understanding the director would later reimburse the company.

CREDIT TRANSACTIONS - 📖s202 - Meaning of “credit transaction”
(1) A “credit transaction” is a transaction under which one party (“the creditor”)—
(a) supplies any goods or sells any
land under a hire-purchase
agreement or a conditional sale
agreement,
(b) leases or hires any land or
goods in return for periodical
payments, or
(c) otherwise disposes of land or
supplies goods or services on the
understanding that payment
(whether in a lump sum or
instalments or by way of
periodical payments or
otherwise) is to be deferred.

GUARANTEES OR THE PROVISION OF SECURITY FOR ANY OF THE ABOVE e.g. director obtains loan from bank and company stands as guarantor for repayment of loan or company provides bank with security over its assets.

Question 49

What is the meaning of companies being ASSOCIATED?

Answer 49

NOTE: Under s256, companies are associated if one is a subsidiary or other or both are subsidiaries of same body corporate.

Question 50

What type of companies are subject to must less regulation re loan transactions with directors?

Answer 50

Private Cos ❌ not associated with plc, are subject to much less regulation than plcs (or Cos associated w plcs)

Question 51

Requirements re LOANS, GUARANTEES, SECURITY for directors - for ALL companies (including public companies and private companies associated with public companies?

Answer 51

No company may make a loan to its director or to directors of its holding company or give guarantees or enter into security in connection with loans to such directors, without the transaction first being approved by shareholders by ORDINARY RESOLUTION.

Question 52

Requirements re QUASI-LOANS, CREDIT TRANSACTIONS and CONNECTED PERSONS re public companies + private companies associated with public companies?

Answer 52

These companies ALSO require shareholder approval by ORDINARY RESOLUTION for:

  1. Loans to persons connected to       
  director of Co or director of its 
  holding Co

  2. Quasi-loans to, or credit 
  transactions with their directors or             
  directors of a holding company or       
  persons connected with such       
  directors; and

  3. Guarantees or security in respect 
  of any such loans, quasi loans or       
  credit transactions with their 
  directors and directors of a holding 
  company or persons connected 
  with such directors

Question 53

Requirements re QUASI-LOANS, CREDIT TRANSACTIONS and CONNECTED PERSONS re companies that are NOT public companies or private companies associated with public companies?

Answer 53

If Co is a private company not associated with a public company, do not require approval for these – only transactions for which shareholder approval is required under CA 2006 loan provisions are loans, guarantees, security for directors.

Question 54

What are the EXCEPTIONS to requirement for shareholder approval for loans and similar transactions under s204-209 CA?

Answer 54

S204 - Expenditure on company business ( 🤏up to £50k) i.e. to provide the director of Co or its holding Co, or person connected with any such director, with funds to meet expenditure incurred or to be incurred by him for the purpose of the company, or for purposes of enabling him to properly perform his duties as an officer of the company, or enable any such person to avoid incurring such expenditure.

S205 - Loans for defending proceedings brought against director

S206 - Loans for defending regulatory actions or investigations

S207 - Minor and business transactions - loans or quasi loans 🤏up to £10,000 and credit transactions 🤏up to £15,000 do not require shareholder approval
S208 - Intra group transactions
S209 - Money lending companies (where loan made in ordinary course of business)

Question 55

What is the requirement around loan-type transactions between Co and the director of holding company or person associated with holding company?

Answer 55

⚠️🤝As with s190, if Transaction between CO and director of Co of holding co or person associated with holding co - holding co will also need to approve transaction by ordinary resolution

Question 56

What is the requirement around loan-type transactions with wholly-owned subsidiaries?

Answer 56

⚠️💝: As with both s188 and 190 approval is NOT required by members of any company which is wholly-owned by another company for these types of transactions.

Question 57

What are the DEFENCES to loan-type transaction requirements not being met?

Answer 57

🛡️ Defences

s213(6): If transaction contravenes s200,201,203 and entered into with person connected with a director, that director will not be liable if they TOOK ALL REASONABLE STEPS to ensure company complies with those ss

S213(7): Also defence for any connected person (if relevant) and any director that authorised transaction who can show they had NO KNOWLEDGE of circumstances constituting contravention.

Question 58

What are the available REMEDIES for breach of approval requirements re loan-type transactions?

Answer 58

⚒️ Remedies

If shareholder approval not obtained + no exceptions apply -> s213 = consequences

Re transaction, consequences set out in s213(2): arrangement VOIDABLE at instance of company unless:
1. Restitution no longer possible
2. Company has been indemnified
for loss/damage suffered by it; or
3. Rights acquired in good faith by
TP would be affected by
avoidance.

Directors involved (or those so connected under s213(4)) are liable to account to the company for any profits made and to indemnify the company for any loss incurred (s213(3)).

S214 - Arrangement can be affirmed by shareholders of company and holding Co (where relevant) by ordinary resolution within a reasonable period.

If affirmed, arrangement may no longer be avoided under s213.

Question 59

Requirements of disclosure under s177 re loan-type transactions with directors?

Answer 59

Director would need to disclose NATURE and EXTENT of interest to board if interested in any transactions caught by s197-202 CA 2006. It is arguable that an interested director need not formally declare an interest if the other directors are already aware of it. However, likely to remain practice that directors will make declaration so documented.

Also note, indirect interest will not always be obvious to board, so directors should be advised to act cautiously

MA14(1) - any interested directors will not be permitted to vote on BR to approve transaction and authorise signatory because it is ‘a transaction with the company in which they are interested’. They cannot count in quorum for BR regarding contract either.

Question 60

Requirements for approval via GM vs via Written Resolution for loan-type transaction?

Answer 60

Ord Res passed @ GM - memorandum setting out proposed transaction must be made available for inspection by members of company both:
1. At Co’s registered office for not
less than 📅15 days ending with
the date of the meeting; and
2. At the meeting itself
So need min of 15 days’ notice for such a BM

Where written resolution procedure followed, memorandum setting out proposed transaction must be sent or submitted to every eligible member at or before the time at which the proposed resolution is sent or submitted to the member.

The ordinary resolution approving the Loan may not be passed unless a memorandum setting out the NATURE and AMOUNT of the Loan and the PURPOSE for which it is required is made available for inspection by the shareholders for at least 15 days ending with the date of the general meeting at which it is voted on and at the general meeting itself.