Directors Transactions with the Company

Question 1

Long Term Service Contracts

Answer 1

Where a service contract of a director is for a term of over 2 years (or cannot be terminated by the company / only terminable by company with 2 years notice) or any combination of these things make the contract over 2 years, the contract must be approved by ordinary resolution of the shareholders.

If D is also D of holding company, OR from shareholders of holding company required.

If company is a wholly owned subsidiary, OR by shareholders not required.

FORMALITIES
* Company must keep copy of the service contracts (including variations) at the Registered Office during the contract and for 1 year from its termination or expiry.

** Company must lay copy of service contract at registered office for inspection 15 days before GM / sent to shareholders if it is a written resolution.

CONSEQUENCES
If not approved by OR correctly + formalities followed, provision in contract is void and company has right to terminate contract on reasonable notice.

Question 2

Substantial Property Transactions

Answer 2

Acquisition or disposal by a director or someone connected to them of a substantial non-cash asset belonging to the company / giving to the company.

Substantial = over £100k is substantial, less than £5k is not, anything in between substantial if over 10% of company’s net asset value.

Connected persons = spouses, civil partners, children, company in which D holds 20% of shares, business partner or person connected to business partner, trustee or trust where D / connected person is a beneficiary.
NOT grandparents, cousins, siblings etc.

If D also director of holding company = OR by members of holding company

If wholly owned subsidiary, no OR needed.

DIRECTOR’S DEFENCES
1. D took all reasonable steps to ensure company compliance.
2. Connected person / D had no actual or constructive knowledge of the breach
3. Shareholders affirm OR within a reasonable time.

REMEDIES
+ Voidable at instance of the company unless restitution is not possible / company is indemnified for loss or damage / rights acquired by good faith third party.
+ Directors involved personally accountable for profits and losses.

Question 3

Loans and Other Financial Assistance

Answer 3

1. Loan to Director
2. Providing Service to Director and Director to pay later (credit)
3. Company agrees to pay off debt owed by director to third party.
4. Guarantee or security for any of the above.

Question 4

Loans and Other Financial Assistance = Private Companies

Answer 4

Requires ordinary resolution for all of the transactions above with a director.
+ No OR required if the company giving loan is wholly owned subsidiary
+ No OR required for expenditure on company business to maximum £50k
+ Intra-group transactions.
+ Minor business transactions (loan / quasi-loan) of max £10k & credit max £15k
+ Loan made in ordinary course of business (money-lending business).

Question 5

Loans and Other Financial Assistance = Public Companies

Answer 5

OR required for all transactions above with director.

OR also required for transactions with persons connected to director AND private company associated with public company (i.e subsidiary or in the same group).