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Transactions requiring member approval - Coggle Diagram
Transactions requiring member approval
Approval takes the form of an ordinary resolution
Service contracts
S.188 applies to a provision under which the guaranteed term of a directors employment with the company is or may be longer than 2 years
A company cannot agree to such a provision unless it has been approved by a resolution of the members
To ensure that the members are fully informed, the resolution must not be passed until a copy of the proposed service contract incorporating the provision is made available to the members
S.188 requires only the provision in question to be approved, it does not require the entire contract to be approved. If the required approval is not obtained, the provision in question is void, the remainder of the contract will remain valid
Substantial property transactions
S.190 applies to an arrangement under which
A director of a company or its holdings company or a person connected with such a director acquires or is to acquire from the company a substantial non-cash asset
The person acquires or is to acquire a substantial non cash asset from such a director or a person so connected
The requirement for member approval only applies to substantial non-cash assets. A non-cash asset is defined as any property or interest in property. A non cash asset will be substantial if it is
Over £100,000
Exceeds 10% of the company's asset value and is more than £5,000
Connected persons
Members of the directors family
A body corporate with whom the director is connected
Trustees of a trust, the beneficiaries of which include the director, members of his family or body corporate
Any partner of the director or partner of a person connected to the director
A firm that is a legal person in which the director is a partner or one of the partners is connected to the director
Exceptions
Where the transaction relates to anything to which the director is entitled under his service contract
Payment for loss of office
Between the company and a person in his capacity as member of that company
Between a holding company and its wholly owned subsidiary or between 2 wholly owned subsidiaries
The company is being wound up
Company is in administration
Consequences of contravention
The transaction is voidable at the company's instance unless
Restitution of any money or other asset is no longer possible
The company has been indemnified in pursuance of this section by any other persons for the loss or damage suffered by it
Rights acquired in good faith, for value and without actual notice of the contravention by a person who is not a party to the arrangement of transaction would be affected
Transaction will cease to be voidable if it approved by a resolution of the members within a reasonable period of the company entering into it
Whether or not the transaction is avoided, a director or connected person is liable
to account to the company any gain that he has made directly or indirectly by the arrangement or transaction
is jointly and severally with any other person so liable to indemnify the company for any loss or damage resulting from the arrangement or transaction
A director who authorised the transaction or a connected person can avoid liability if they can show that at the time the transaction was entered into, they did not know of the relevant circumstances that constituted the contravention
Loans, quasi-loans and credit transactions
Where a company makes a loan to director of the company or its holding company or gives a guarantee or provides security in connection with a loan made by any person to such a director
Where a public company makes a quasi-loan to a director of the company or its holding company or gives a guarantee or provides security in connection with a quasi-loan made by any person to such a director
Where a public company enters into
A credit transaction as creditor for the benefit of a director
It gives a guarantee or provides security in connection with a credit transaction
Exceptions
The transaction provides a director with funds to meet expenditure incurred by him
The value of the funds in question does not exceed £50,000
The transaction provides the director with funds to meet expenditure incurred by him in defending specified legal proceedings
Where a loan or quasi-loan does not exceed £10,000
Where a credit transaction does not exceed £15,000
Where a loan, quasi loan or credit transaction is made to an associated body corporate
Consequences of contravention
The transaction is voidable at the company's instance unless
Restitution of any money or other asset that was the subject matter or the arrangement or transaction is no longer possible
The company has been indemnified in pursuance of this section by any other persons for the loss or damage suffered by it
Rights acquired in good faith, for value and without actual notice of the contravention by a person who is not a party to the arrangement or transaction would be affected by the avoidance
The transaction will also cease to be voidable if it is approved by a resolution of the members within a reasonable period of the company entering into it
Whether or not the transaction is avoided, a director or connected person is liable
to account to the company for any gain that has made directly or indirectly by the arrangement or transaction
is jointly and severally liable to indemnify the company for any loss or damage resulting from the arrangement or transaction
A director who authorised the transaction or a connected person can avoid liability if they can that they did not know of the relevant circumstances that constituted the contravention
Remuneration and payments for loss of office
Unquoted companies
Must not make a payment for loss of office to a director unless the payment has been approved by a resolution of the company
In several situations member approval is not required for a loss of office payment, including
A payment made in good faith to discharge an existing legal obliggation
A payment made in good faith by way of damages for breach of an existing legal obligation
A payment made in good faith by way of settlement or compromise of any claim arising in connection with the termination of a persons office or employment
A payment made in good faith by way of pension in respect of past services
A payment made by the company or any of its subsidiaries that does not exceed £200
If member approval is required and not obtained then the recipient of the payment holds it on trust for the company that made the payment and any director who authorised the payment is jointly and severally liable to indemnify the company that made the payment and fo any loss resulting from it
Quoted companies
A quoted company may not make a remuneration payment or a loss of office payment to a person who is or is to be or has been a director of the company unless
The payment is consistent with the approved directors remuneration policy
The payment is approved by a resolution of the members