It is common for directors to have the authority to enter a wide range of contracts. Such authority comes from Table A art 70:
70 … the business of the company shall be managed by the directors who may exercise all of the powers of the company.
Therefore subject to CA 06, the companies own Memorandum & Articles directors can make a decision without requiring member approval.
HOWEVER under s190 CA 06, a director or a person connected with a director buying or selling an asset for/from the company and that asset is “a substantial non-cash asset” will require approval by the members by ordinary resolution. Either before the contract is entered into or entered into subject to members consent.
Test for a substantial non-cash asset (s191)
- An asset worth less than £5,000 is never substantial.
- An asset worth in excess of £100,000 always will be substantial.
- An asset worth between £5000 - £100,000 will be substantial, if it exceeds 10% of the company’s asset value (or net asset value).
A connected person with a director of a company is (s252-253 CA 06):
- A member of the directors family.
- A corporate body he’s connected to.
- Child of director
- Parents
Therefore before directors can purchase an asset under art 70, which is a substantial non-cash asset, they must first obtain the consent of the members consent by ordinary resolution or at least make it a condition of the contract that approval being obtained from members.
OTHERWISE the transaction is generally voidable at the Company’s request whilst those “liable” must account for any gain and indemnify the Company in respect of any related loss (s195 CA 06).
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