Substantial Property Transactions Flashcards
Under s 190 CA 2006, which of the following is true regarding substantial property transactions?
A) They require approval by special resolution
B) They require approval by ordinary resolution
C) They do not require shareholder approval if the company’s articles allow
D) They are automatically valid if entered into by the directors
B) They require approval by ordinary resolution
Explanation:
SPTs require shareholder approval via an ordinary resolution (OR) before or after the transaction (if conditional on approval). Special resolutions are not required.
Which of the following statements about substantial non-cash assets is true?
A) An asset worth £3,000 is always substantial
B) An asset worth £50,000 is always substantial
C) An asset worth £75,000 is substantial only if it exceeds 10% of the company’s net assets
D) An asset worth £250,000 is not substantial if the company is a holding company
C) An asset worth £75,000 is substantial only if it exceeds 10% of the company’s net assets
Explanation:
A substantial non-cash asset is:
Always substantial if over £100,000
Not substantial if £5,000 or less
Substantial if between £5,000 and £100,000 and exceeding 10% of net assets
Which of the following is not considered a connected person under s 252-254 CA 2006?
A) A director’s wife
B) A director’s business partner
C) A director’s uncle
D) A company where a director holds 30% of shares
C) A director’s uncle
Explanation:
A director’s uncle, siblings, grandparents, and cousins are NOT connected persons. Spouses, business partners, companies where the director owns 20%+ shares, and trustees of relevant trusts are connected persons.
A director of ABC Ltd is also a director of DEF Ltd. ABC Ltd wants to sell a property to DEF Ltd for £150,000. Which of the following is true?
A) No approval is needed because DEF Ltd is not a connected person
B) The transaction is void unless approved by the board
C) Approval is needed only if the director holds 20% or more shares in DEF Ltd
D) Approval is needed because the transaction exceeds £100,000 and involves an entity controlled by a director
D) Approval is needed because the transaction exceeds £100,000 and involves an entity controlled by a director
Explanation:
The £150,000 property exceeds the £100,000 threshold
DEF Ltd is controlled by a director of ABC Ltd, making it a connected entity
SPT approval is required under s 190 CA 2006
A company with £1,000,000 net assets wants to buy land from a director’s spouse for £80,000. Which of the following is true?
A) No approval is required because the transaction is below £100,000
B) Approval is required because the transaction exceeds £5,000 and is more than 10% of net assets
C) Approval is required only if the land is used for company operations
D) The transaction is automatically void without approval
B) Approval is required because the transaction exceeds £5,000 and is more than 10% of net assets
Explanation:
The £80,000 transaction exceeds 10% of net assets (£100,000)
The director’s spouse is a connected person under s 253 CA 2006
SPT rules apply and OR approval is required
XYZ Ltd has net assets of £800,000. The company wants to sell a warehouse to its director’s father for £60,000. Does this require shareholder approval?
A) No, because the asset is worth less than £100,000
B) No, because the director’s father is not a connected person
C) Yes, because the asset is over £5,000 and exceeds 10% of net assets
D) Yes, because any transaction involving a director requires shareholder approval
C) Yes, because the asset is over £5,000 and exceeds 10% of net assets
Explanation:
The £60,000 warehouse exceeds 10% of the company’s net assets (£80,000)
A director’s father is a connected person under s 253 CA 2006
SPT rules apply, so shareholder approval by OR is required
A director sells their personal car to the company for £4,000. The company’s net assets are £50,000. What is the correct outcome?
A) The transaction is substantial and requires approval
B) The transaction is substantial because it involves a director
C) The transaction is not substantial and does not require approval
D) The transaction is automatically void under s 195 CA 2006
C) The transaction is not substantial and does not require approval
Explanation:
The £4,000 value is below £5,000, so it does not qualify as substantial under s 191 CA 2006
No shareholder approval is required
If an SPT is entered into without approval, which of the following is NOT true?
A) The transaction is voidable by the company
B) The directors involved must account for any profits made
C) Shareholders can approve the transaction afterwards to prevent it being voided
D) The connected person is always personally liable for the breach
D) The connected person is always personally liable for the breach
Explanation:
The SPT is voidable unless:
Restitution is impossible
The company is indemnified
Third-party rights would be affected
Directors must return profits and can be personally liable
Connected persons are liable only if they had knowledge of the breach
Which of the following is an exception to the requirement for shareholder approval under s 190 CA 2006?
A) A director selling their company shares back to the company
B) A director buying company property worth £120,000
C) A director’s spouse selling land to the company worth £80,000
D) A director’s father selling machinery to the company worth £60,000
A) A director selling their company shares back to the company
Explanation:
Shareholder approval is NOT required if a transaction is purely as a shareholder (s 192(a) CA 2006).
SPTs apply to substantial non-cash assets, not share transfers.
Which statement about ratification under s 196 CA 2006 is true?
A) A voided transaction can never be ratified
B) A transaction can be ratified only if the director resigns
C) Shareholders can ratify an SPT via an ordinary resolution within a reasonable time
D) Ratification removes all liability from the director
C) Shareholders can ratify an SPT via an ordinary resolution within a reasonable time
Explanation:
Shareholders can approve an SPT via OR under s 196 CA 2006
Ratification prevents the transaction from being voided
