Section 190 Companies Act 2006 – Ignore At Your Peril

Ensuring company decisions are legally and validly made can be an intricate process, which can cause significant problems for the unwary.

This is certainly the case when a company does business with its own directors or a director’s connected persons relating to the transfer to, or from, the company of substantial property (i.e. non-cash assets). Substantial means anything valued over £100,000 or anything more than 10% of the company’s net assets which is over £5,000.

As company decisions are generally made by its directors, the Companies Act 2006 requires the approval of a company’s members for substantial property transactions which may benefit the directors/their connected persons at the expense of the company.

If the directors fail to get the right approval then it may sometimes be possible for the company to avoid the transaction (i.e. set it aside and have the property/cash returned). Also, the director or person in question could be liable to account for any gain made by the transaction and to indemnify the company for loss.

In September 2022 the High Court decided in MetalNRG plc v BritENERGY Holdings LLP and others [2022] EWHC 2528 (Ch) by way of summary judgment that MetalNRG plc was entitled to rescind agreements entered into with BritENERGY Holdings LLP (the LLP). We understand that permission to appeal that summary judgment was recently refused.

It is understood that the LLP was 70% owned by a company entirely owned by the wife of a director of MetalNRG plc and the LLP was therefore considered a person connected with that director.

MetalNRG plc had entered into a conditional share purchase agreement with the LLP to acquire shares from the LLP in a limited company and a conditional share option agreement granting an option to acquire further shares from the LLP in that company. The shares and the option to acquire shares were considered by the Court as substantial property to be acquired from a person connected with a director of MetalNRG plc. MetalNRG plc had failed to obtain the approval of its shareholders under Section 190 of the Companies Act 2006 before entering into those agreements and was entitled to have the agreements set aside.

The Court considered the agreements being conditional as irrelevant as to whether Section 190 applied (i.e. it was not the intention of the legislation that the directors needed to consider the likelihood of a condition being achieved as to whether Section 190 applied).

How Can BHW Help?

If you need advice on any of the topic covered in this article then our specialist corporate and commercial solicitors can assist you. While it may be possible to take post-transaction steps; early advice is strongly recommended. For further information on common transactions with directors which require shareholder approval see here or contact BHW’s corporate team on 0116 289 7000 or email info@bhwsolicitors.com.