Directors’ Transactions

Dealings in Company’s Assets

Certain acquisitions, transactions and transfers between directors and the company must be approved by the shareholders in general meeting or by written resolution. The requirement applies where the company acquires certain non-cash assets from a director, or a director acquires certain non-cash assets from the company. Similarly, transactions with persons connected with the company’s director must be approved in the same way.

The requirement applies in respect of non-cash assets over €65,000 in value or 10% of the company’s relevant assets, whichever is less.  If the procedure is not followed, the company can avoid the transaction and have it set aside. Breach of the requirement is a criminal offence. The requirement also applies to shadow directors and de facto directors.

There are exemptions for transactions between group companies. There is an exemption for assets distributed in a winding up. There is an exemption in relation to share options given by companies in favour of directors.  Transactions in relation to companies listed on a stock exchange are subject to further restrictions.


Transactions Covered I

Transactions in relation to non-cash assets between the company and directors and persons connected with directors must be approved by the shareholders in general meeting or by written resolution. The requirement applies where a director of the company or of its holding company or a person connected with a director, acquires or is to acquire, one or more non-cash assets of more than the below-mentioned value from the company, or the relevant company is to acquire such asset from the director or the connected person. If the director or connected person is a director of its holding company or a person connected with them, it must be approved by a resolution of the holding company.

The relevant value is the value of the asset or arrangement in question when the transaction occurred. It is to be not less than €5,000 but, subject to that, the lower of €65,000 or 10 percent of the amount of the company’s relevant assets. The relevant assets of a company are the value of its net assets determined in its most recent financial statements.


Transactions Covered II

If no financial statements have been prepared and laid before the general meeting, it is the amount of its called-up share capital. Net assets, means the aggregate company assets less its liabilities, in accordance with financial statements.

A non-cash asset is any property or interest in a property, other than cash.  Cash includes foreign currency.  It includes the creation or extinction of an estate or interest or a right over, any property and the discharge of any person’s liability, other than liability for a liquidated sum.


Consequences of Breach I

The transaction may be avoided by the company.  It may not be avoided, where third parties acting bona fide for value have acquired rights. An arrangement entered by the company in contravention of the provision and any transaction entered in pursuance of such an arrangement is voidable at the instance of the company.

This is the case unless

  • restitution of the money or another asset, the subject of the arrangement is no longer possible;
  • the company has been indemnified by another person for loss and damage suffered;
  • rights are acquired bona fide for value without actual notice of the contravention by any person who is not party to the arrangement or transaction and who would be affected by its avoidance;
  • the arrangement is affirmed by a resolution of the company in general meeting passed within a reasonable time after the transaction or transfer.

Consequences of Breach II

A director who enters a prohibited transaction must account to the company for benefits received.  He must indemnify the company in respect of the loss incurred.  The same obligation applies to directors who authorise a prohibited transaction.  The director may be relieved of liability if he can show that he took reasonable steps to secure compliance.  He may be relieved if he did not know the circumstances which made the transaction unlawful.

Where a company subsequently goes into insolvent liquidation and the court considers the prohibited transaction contributed materially to its insolvency or substantially impeded the ordinary winding up of the company, it may declare that any person for whose benefit the transaction was made, shall be personally liable with or without limitation for some or all of the company’s debts.

The court is to have regard to what extent outstanding liabilities were discharged before winding up.  It is to have regard to the extent to which the arrangement contributed to the insolvency of the company.

Breach of the above prohibitions is an offence.  The company or an officer who knows, authorises or permits the company to enter the transaction which he knows or has reasonable cause to believe contravenes the provision, is guilty of an offence. This is subject on summary conviction to up to 12 months’ imprisonment and/ or a fine or up to 5 years’ imprisonment or fine, or both, on conviction on indictment.


Exemptions I

The requirement (for shareholders’ approval) does not apply in respect of the acquisition or transfer of a non-cash asset

  • to or from a holding company and wholly owned subsidiaries;
  • by one wholly owned subsidiary of a holding company from another wholly owned subsidiary of that holding company;
  • if the arrangement is entered into by a company which is being wound up, unless the winding up is a members’ voluntary winding up; or
  • if the arrangement involves the disposal of a company’s assets by a receiver.

Exemptions II

The prohibition does not apply to an arrangement under which a person acquires or is to acquire an asset from a company of which he is a member if the arrangement is made by that person in his character as such member.

No approval is required by a body corporate unless it is a company formed and registered under the Companies Act or is an existing company. No approval is required to be given by a wholly owned subsidiary of any body corporate.


References and Sources

Primary References

 

Companies Act 2014 (Irish Statute Book)

Companies Act 2014: An Annotation (2015) Conroy

Law of Companies 4th Ed.  (2016)  Ch.17   Courtney

Keane on Company Law 5th Ed. (2016) Ch. 27 Hutchinson

Other Irish Sources

Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury

Introduction to Irish Company Law    4th Ed. (2015) Callanan

Bloomsbury’s Guide to the Companies Act 2015      Courtney & Ors

Company Law in Ireland 2nd Ed. (2015) Thuillier

Pre-2014 Legislation Editions

Modern Irish Company Law   2nd Ed. (2001) Ellis

Cases & Materials Company Law 2nd Ed. (1998) Forde

Company Law 4th Ed. (2008)  Forde & Kennedy

Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy

Companies Acts 1963-2012   (2012)  MacCann & Courtney

Constitutional Rights of Companies   (2007)  O’Neill

Court Applications Under the Companies Act (2013) Samad

Shorter Guides

Company Law – Nutshell 3rd Ed. (2013) McConville

Questions & Answers on Company Law (2008)        McGrath, N & Murphy

Make That Grade Irish Company Law 5th Ed. (2015) Murphy

Company Law BELR Series (2015)   O’Mahony

UK Sources

Companies Act 2006 (UK) (Legilsation.gov.uk)

Statute books Blackstone’s statutes on company law (OUP)

Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington

Company Law in Context 2nd Ed. (2012) D Kershaw

Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam

Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington

 

UK Practitioners Services

Tolley’s Company Law Handbook

Palmer’s Company Law