Corporate Governance: Director Transactions
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Questions and Answers

What constitutes a substantial non-cash asset according to S 191(2)?

  • An asset valued at 10% of the company’s asset value with a minimum of 5k. (correct)
  • An asset valued over 5k that does not meet the company asset value percentage.
  • Any asset greater than 10% of company’s assets, but less than 100k.
  • An asset valued over 100k regardless of the company's total asset value.

    • Under what circumstance is shareholder approval NOT required for the acquisition of a substantial non-cash asset?

  • The transaction falls under federal jurisdiction.
  • The company is a wholly owned subsidiary. (correct)
  • The company is involved in a merger.
  • The transaction involves a private shareholder agreement.

    • What are the civil consequences outlined in S 195(2) if shareholder approval is not obtained when required?

  • The directors are automatically relieved of liability.
  • The contract becomes valid upon board approval.
  • The contract is voidable by the company. (correct)
  • The shareholder must pay a fine to the company.

    • Which of the following is NOT listed as an exception for requiring shareholder approval?

    <p>Transaction involves a sale of assets to an external third party. (C)</p> Signup and view all the answers

    Who may be liable to indemnify the company for any loss it has suffered if shareholder approval was not obtained?

    <p>The director involved, a connected person, and any director who authorized the contract. (D)</p> Signup and view all the answers

    What is the definition of a non-cash asset as per S 1163?

    <p>Any property or interest in property other than cash. (B)</p> Signup and view all the answers

    What is the minimum value for a non-cash asset to be considered substantial if it does not exceed 10% of the company's asset value?

    <p>5k (A)</p> Signup and view all the answers

    Which action is NOT a requirement for certain transactions involving directors?

    <p>Transactions involving cash assets between the company and directors. (C)</p> Signup and view all the answers

    Flashcards

    What does section 190(1) of the Companies Act 2006 cover?

    A director or person connected to a director acquiring a substantial non-cash asset from the company, or the company acquiring such an asset from a director or connected person.

    Define 'non-cash asset' under section 1163.

    Any property or interest in property other than cash.

    What are the criteria for a substantial non-cash asset under section 191(2)?

    A non-cash asset is substantial if its value exceeds 10% of the company's asset value and is more than £5,000, or if its value exceeds £100,000.

    What are some exceptions to needing shareholder approval for transactions under section 190(1)?

    Shareholder approval is not required when the company is not a UK registered company, is a wholly owned subsidiary, or the transaction relates to a director's service contract or a shareholder in their capacity as a shareholder.

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    What are the civil consequences of not obtaining shareholder approval under section 195(2)?

    If shareholder approval is not obtained when required, the contract is voidable by the company unless certain conditions apply, such as where restitution is not possible.

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    What are the potential liabilities for directors involved in transactions without shareholder approval under section 195(3)?

    A director who was involved in the contract, a person connected to that director, and any other director who authorized the contract may be liable to indemnify the company for any loss and account for any gain they have made.

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    Study Notes

    Director and Company Transactions Requiring Shareholder Approval

    • Shareholder approval required for specific transactions involving directors or their connections.
    • Two key scenarios:
      • Director acquiring substantial non-cash asset from the company.
      • Company acquiring substantial non-cash asset from a director or connected person.
    • Non-cash asset defined as any property or interest in property, excluding cash (s 1163).
    • Substantial asset determined by value:
      • Exceeds 10% of company asset value AND more than £5,000.
      • Exceeds £100,000.
    • Exceptions to shareholder approval requirement:
      • Company not UK registered.
      • Company is a wholly owned subsidiary.
      • Transaction within director's service contract entitlements.
      • Transaction related to director's shareholder capacity.

    Civil Consequences of Non-Compliance

    • Voidable contract if shareholder approval is not obtained when required (s 195(2)).
      • The contract can be voided by the company unless specific conditions are met, such as when restitution is impossible.
    • Director liability for company losses and gains:
      • Directors involved in the transaction, connected persons, and authorizing directors potentially liable to compensate the company for any losses or gains (s 195(3)).

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    Description

    This quiz focuses on the requirements for shareholder approval regarding transactions involving directors and their connections. It covers scenarios involving substantial non-cash assets and outlines exceptions to the approval requirement and consequences of non-compliance. Test your knowledge on corporate governance and related legal implications.

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