WS4: Specific Transactions between Companies and Directors Flashcards
What are the four types of transactions which need shareholder approval?
Directors Long term service contracts
Payments for loss of office
Loans, quasi-loans and credit transactions
Substantial property transactions
What approval does a long term service contract need?
Shareholder ordinary resolution
If not given, is void + a term implied in deeming company to terminate contract at any time with reasonable notice
[Long term - longer or may be longer than two years]
What approval does a substantial property transaction need?
Shareholder ordinary resolution before transaction is entered into / can also be after but this makes liability much greater.
What defines substantial in a SPT?
Exceeds 10% of company’s asset value and is over £5k
Is over £100,000
Who is a SPT between?
A company and its directors, or a company and ‘connected persons’
What are the key categories of connected persons?
Members of director’s family: spouse, parents, children / step children.
Companies in which the director holds over 20% of shares
A business partner of director / someone connected with them
Trustees of a trust of which the beneficiaries include a director / connected person.
What are the remedies if a SPT is entered into without shareholder approval?
Arrangement / transaction are voidable at the instance of the company. Directors liable must account for profits / indemnify for loss.
unless:
- Restitution is no longer possible
- Company has been indemnified already
- Rights acquired in good faith, for value and without notice by a 3rd party would be affected.
How must a loan to a director by the company be approved?
Information provided by director on: nature of transaction, amount and purpose of loan, company’s liability in the form of a memorandum.
Shareholders must approve by ordinary resolution.
What is different about remuneration vs loan?
A sum of money lent for a period of time, to be returned in money / money’s worth.
Loan v remuneration is a question of fact in every case.
Remuneration is to be given for work done / to be done and might not take the form of a normal wage.
What are the exceptions for loans to directors?
- Expenditure on company business up to 50k
- Loans for defending proceedings brought against a director or regulatory actions or investigations
-Minor / business transactions up to £10k
-Intra-group transactions
-Money lending companies where loan is in the ordinary course of business of the company
How does a loss of office payment need to be made?
Approved by shareholders by ordinary resolution.
What are the exceptions when loss of office payments need approval?
Payment made in good faith AND
- Discharge of an existing legal obligation
- Settling damages for breach of such an obligation
- By way of settlement or compromise of any claim arising in connection with termination of a person’s office or employment
-Pension - Less than £200.
What happens if no shareholder approval is obtained for a loss of office payment?
Director holds payment on trust for company and director who authorised payment is joint and severally liable to company for any resulting losses.
