Substantial property transactions Flashcards
When is shareholder approval required in relation to substantial property transactions?
CA 2006 states that shareholder approval by ordinary resolution is required where there is an acquisition or disposal by a director/holding company director (or connected person) of a substantial non-cash asset to or from the company.
When must shareholder approval be given?
Shareholder approval must be given before the transaction is entered into, or after, provided that the transaction is made conditional on approval being obtained.
What is a non-cash asset?
Any property other than cash
What does ‘substantial’ mean?
“Substantial” is defined as:
*An asset worth £5,000 or less is not a substantial asset
*An asset worth more than £100,000 is a substantial asset
*An asset worth more than £5,000 but not more than £100,000 is a substantial asset only if it is worth more than 10% of the company’s net asset value. A company’s net asset value is shown in most recent statutory accounts.
If the company is only recently incorporated and no accounts have been prepared, the net asset value is the amount of the company’s called up share capital.
What are the categories of ‘persons connected with a director’?
- Members of the directors family: spouse or civil partner, parents, children or step-children. Brothers, sisters, grandparents, grandchildren, uncles and aunts are NOT connected persons.
- Companies in which the director (and others connected with them) hold 20% or more of the shares.
- A business partner of the director or those connected with them.
- Trustees of a trust the beneficiaries of which include the director or those connected with them.
When will a holding company also need to approve the transaction?
CA 2006 states that if the transaction is between a company and a director of the company’s holding company or a person connected to a director of the holding company, the holding company will also need to approve the transaction by OR.
Is approval required if the company is a wholly owned subsidiary of another company?
Approval is not required by members of any company which is a wholly-owned subsidiary of another company.
There are a list of limited exceptions in s192, for example, if a director who is also a shareholder sellers their shares back to the company, this transaction will not be a SPT because it is considered a transaction between a company and a person in their capacity as a shareholder.
Where a SPT is entered into without shareholder approval what will be the remedy?
Where a SPT is entered into without shareholder approval, the transaction is voidable at the instance of the company unless:
(a) restitution is no longer possible,
(b) the company has been indemnified for the loss or damage suffered by it, or
(c) rights acquired in good faith by third party would be affected by the avoidance.
The directors involved (and those so connected) are liable to account to the company for any profits made and to indemnify the company for any loss incurred.
What are the potential defences for SPT’s?
If the SPT is between a company and a person connected with a director, and the director concerned shows that they took all reasonable steps to ensure the company’s compliance, the director will not be liable.
There is also a defence for any connected person (if relevant) and any director who authorised the transaction who can show they had no knowledge of the circumstances constituting the contravention.
What disclosure is required for an SPT?
Under s 177(1) CA 2006 a director would need to disclose the nature and extent of their interest to the board.
Under the exception in s177, it is arguable that an interested director need not formally to declare an interest if the other directors are already aware of it. However, it is likely to remain the practice that directors will continue to make the declaration so that it is documented in the board minutes.
Can the interested director vote and count as quorum in relation to the SPT?
Under MA, any interested directors will not be permitted to vote on the board resolutions to approve the contract and authorise a signatory. They cannot count in the quorum for board resolutions regarding the contract either.
