Transactions with directors Flashcards
Considering transactions with directors
What long-term service contracts need shareholder approval?
Only those that are for a guaranteed period of over two years.
What form of shareholder approval is needed for long-term service contracts?
Ordinary resolution is required.
Is there any exception to the rule the approval of shareholders is needed for long-term service contracts?
Yes, no approval is needed by members of any company that is a wholly owned subsidiary of another company.
What are the consequences of not getting shareholder approval for a long-term service contract of a director?
The provision will be void to extent of the contradiction AND the contract will be deemed to contain a term entitling the company to terminate it at any given time by giving reasonable notice.
Do directors need to declare an interest under s 177 in their own service contract?
Legally no but in practice they likely will.
Is a director allowed to vote on their own service contract?
Under MA 14, no - cannot vote or count as part of the quorum.
What must a company do in respect of all director’s service contracts?
They must have them available for inspection by members at the company’s registered address for at least one year during and from date of termination or expiry.
What procedural issues must be complied with for the shareholders approving a long-term service contract at a GM?
A memorandum setting out the proposed terms of the contract must be made available to members for inspection:
- at least 15 days before the GM
- at the GM
Cannot use short notice to shorten this
What procedural issues must be complied with for the shareholders approving a long-term service contract by written resolution?
A memorandum setting out the proposed terms of the contract must be sent to every member before or at time when proposed resolution is sent.
What is a substantial property transaction?
- An acquisition or disposal
- by director of a company/director of the company’s holding company/connected person to such directors
- of a substantial non-cash asset
- from or to the company
What is a substantial non-cash asset?
An asset other than cash.
Worth more than £100,000
Not worth £5,000 or less
If worth more the £5,000 but less than £100,000 makes up more than 10% of company’s net value asset.
Who is a connected person for substantial property transactions?
- a director’s spouse, civil partner, parents, children and step-children
- bodies corporate where the director holds at least 20% share
- business partner of the director
- trustees of a trust where beneficiary is the director or connected person
Who needs to approve a substantial property transaction?
The shareholders of the company
AND
if the transaction is between a company and the director of the company’s holding company (or connected person of holding company) then holding company will also need to approve.
Are there any exceptions to needing the shareholders of a company to approve for a substantial property transaction?
The shareholders do not need to approve if the company is a wholly owned subsidiary of another company.
What remedies are available if shareholder approval is not gained for a substantial property transaction?
The transaction is voidable at the instance of the company unless:
- restitution is no longer possible
- the company has been indemnified for loss or damage suffered OR
- rights acquired by third parties in good faith would be affected
Directors involved can be made to account to company all profits and indemnity company for any loss
Shareholders can affirm the decision by OR within reasonable period meaning it can no longer be avoided.
