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ORDINARY RESOLUTION - APPROVE A SUBSTANTIAL PROPERTY TRANSACTION

The Companies Act 2006 (CA 2006) contains provisions that restrict and control substantial property transactions entered into between a company and its directors.

 

Sections 190-196 of the Companies Act 2006 cover substantial property transactions between a company and one of its directors or a director of its holding company; and any person connected with such a director.


Section 191 CA 2006 defines substantial as an asset which:

- exceeds 10% of the company's asset value and is more than £5,000; or

- exceeds £100,000.

 

This Ordinary Resolution - Approve a Substantial Property Transaction shall be used where members of a company are asked to approved a substantial property transaction involving a director or a connected person.

 

This Ordinary Resolution - Approve a Substantial Property Transaction contains alternative resolutions to cover the different circumstances covered in sections 190(1) (a) and 190(1) (b) of the Companies Act 2006.

 

The alternative resolutions have been drafted on the basis that the substantial property transaction involves:

  • a director of the company
  • a director of the company’s holding company
  • a person connected with a director of the company
  • a person connected with  a director of the company’s holding company


Substantial property transactions require approval from members. Shareholders can approve a substantial property transaction by passing an Ordinary Resolution i.e. a majority of the total voting rights of all eligible shareholders (unless the company's articles require a higher approval level such as a special resolution) before the transaction is entered into; or after the transaction has been agreed provided the transaction is conditional on members' approval being granted.
 

In other words, a company may not enter into an agreement under which a director of the company or its holding company, or a person connected with such a director, acquires or is to acquire from the company (directly or indirectly) a substantial non-cash asset; or the company acquires or is to acquire a substantial non-cash asset (directly or indirectly) from such a director or a person so connected, unless the arrangement has been approved by:

 

  • by the members of the company, or
  • by both the members of that company and the members of that company’s holding company where the substantial property transaction is entered into with a director of that company’s holding company or a person connected with a director of that company’s holding company, or
  • is conditional upon such approval being obtained.  

 

Where a company enters into a substantial property transaction without obtaining any required members’ approval or without it being conditional upon any such required approval being obtained, that substantial property transaction and any transaction entered into pursuant to it (whether by the company or any other person) is voidable at the instance of the company, in other words, it can be rescinded by the company.

 

A company is not liable due to a failure to obtain any members’ approval required in relation to a substantial property transaction, but the people involved in the transaction or the directors who authorised the transaction are liable to the company regardless of whether the company has rescinded the substantial property transaction or any transaction entered into pursuant to it. Thus, in the event that a substantial property transaction takes place without shareholder approval, the parties involved should seek to have the transaction subsequently approved by the shareholders as soon as possible.

 

This Ordinary Resolution - Approve a Substantial Property Transaction is in Microsoft Word format, written in plain English, easy to use and edit.

 

 

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