Director and Shareholder Approval for Transactions Flashcards
What does the Companies Act 2006 require when a director has an interest in a transaction?
Under s. 177 Companies Act 2006, a director with a direct or indirect interest in a proposed transaction must declare that interest to the board before the company enters into the transaction.
How can a director declare their interest?
The declaration can be made:
- Orally (s. 177(2)(a) or s. 182(2)(a)); or
- In writing (s. 184 CA 2006).
A declaration is not required if:
- The interest is unlikely to give rise to a conflict.
- The other directors are already aware of the interest.
- The transaction involves terms of a director’s service contract (s. 177(6) CA 2006).
What are the voting restrictions for interested directors?
Under Model Article 14(1), a director with an interest cannot vote on the board decision and cannot count toward the quorum.
Exceptions under MA 14(3) allow voting if:
- An ordinary resolution waives the restriction.
- The interest does not give rise to a reasonable conflict.
- The interest arises from a permitted cause.
What is a substantial property transaction under s. 190 CA 2006?
Under s. 190(1) CA 2006, a company cannot buy or sell a substantial non-cash asset to or from:
- A director of the company; or
- A connected person (e.g., spouse, civil partner, or close relative of a director) unless shareholder approval is obtained.
How is a “substantial non-cash asset” defined under s. 191 CA 2006?
A non-cash asset is substantial if:
- It exceeds 10% of the company’s net asset value and is worth more than £5,000; or
- It is valued at over £100,000, regardless of net asset value.
How is shareholder approval obtained for a substantial property transaction?
The company must pass an ordinary resolution (majority vote of over 50% of shareholders) before or after the transaction takes place (s. 190(1) CA 2006
Can an interested director vote as a shareholder?
Yes, unless the company’s articles restrict it. Under Model Articles, there is no restriction, so the interested director and their spouse may vote on the resolution.
