Substantial property transactions and loan to directors Flashcards
Loans to directors
loans from company to a director must be approved by an OR (s 197(1)) unless and exception applies
where shareholder approval is not required for loans to a director
- where the loan / quasi-loan (e.g. company will meet a director’s financial obligation on the understanding that the director will reimburse later) for under GBP 10,000
- credit transactions up to GBP 15,000
- loans, quasi-loans, and credit transactions up GBP 50,000 where the loan is for expenditure on company business
- loans, quasi-loans and credit transactions to fund a director’s defence in proceedings for a breach of duty, or investigations by a regulatory authority
- loans, quasi-loans, and credit transactions made between some groups of companies, e.g. where the director is also a director of another company within the same group
requirements to be met for shareholders to approve a loan to a director
a memorandum must be drawn up and made available for inspection by the shareholders
the memo must set out:
- nature of transaction
- amount of the loan
- purpose of the loan; and
- extent of the company’s liability under the transaction
the memo must be made available
- at the company’s registered office;
- for at least 15 days ending on the day of the general meeting;
- at the meeting
if written resolution is passed, copy of the memo must be sent to all eligible shareholders either:
- with the resolution; or
- before the resolution is sent out
consequences if a loan is made without shareholders’ approval
contract is voidable by the company
the company must be indemnified for any losses by:
- director who entered into the contract; and
- person connected to such a director; and
- any director who authorised the conduct
however, shareholders can ratify the breach by an OR (s 214)
what is a substantial property transaction
where a company enters into a transaction with a director or a connected person for a substantial, non-cash asset
elements of a substantial property transaction
- is there an arrangement?
- is the arrangement between the company and a director / connected person
- Does the transaction:
a. concern non-cash asset?
b. that is substantial? - does an excemption apply?
who is a connnected person?
- a member of the director’s family; or
- a body corporate with which the director is connected
“members of the director’s family”
members of the director’s family include:
- civil partner / spouse
- a live in partner, their children or step children under 18
- director’s children / step children
- parents
family members not included:
- siblings
- grandparents
- grandchildren
- uncles & aunts
- cousins
“a body corporate with which the director is connected”
s254: if the director and the persons connected with them together:
- are interested in at least 20% of the share capital of the body corporate; or
- control more than 20% of the voting power of the body corporate
non-cash asset
any property other than cash
e.g.:
- shares
- machinery
- property rights (e.g. lease, mortgage, fixed / floating charges)
does not include loans - governed by different rules
when will a transaction be substantial?
- under GBP 5,000 = never
- GBP 5,000 - 100,000 = only where the transaction is OVER 10% of the company’s asset value (net assets)
- over 100,000 = always
exceptions to where an STP needs to be approved
if exemption applies = transaction doesn’t need to be approved by an OR
- the transaction is with a wholly owned subsidiary
- the transaction is with a directors in their capacity as a shareholder
- the transaction is between a holding company and its subsidiary
- the transaction is between two wholly-owned subsidiaries of the same holding company
- the transaction is entered into when the company is in administration or being wound up
if the arrangement is an STP and no exemption applies
the company needs to obtain shareholder approval by an OR before the transaction takes place
directors need to either:
- call a GM; or
- circulate a written resolution
if a company fails to obtain approval for an STP
contract will be voidable by the company (unless certain conditions apply, e.g. where restitution of property or money is no longer possible)
director may be liable to indemnify the company for any loss or damage resulting from the transaction, and account to the company for any gain they have made
shareholders may ratify failure to obtain shareholder approval by OR (s 196)
