Examination Timing: 00H00M01S
The directors of Greenfield Ltd, a private limited company, plan to sell some land owned by the company. The proposed purchaser of the land is the father of one of the directors. The company's directors are also its shareholders. The land has recently been independently valued at £70,000 and it is agreed that this will be the sale price. The company’s most recent set of annual accounts state net profits of £770,000 and net assets of £600,000. The company has adopted the Companies (Model Articles) Regulations 2008 (unamended) as its articles of association.
Does the proposed sale of land require shareholder approval?
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The correct answer is D. According to section 190 of the Companies Act 2006, substantial property transactions involving a director or connected persons (such as family members) must be approved by the shareholders. A substantial property transaction is one where the value of the asset exceeds 10% of the company’s net asset value and is more than £5,000, or exceeds £100,000. In this case, the value of the land (£70,000) exceeds 10% of the company’s net asset value (£600,000), which is £60,000. Therefore, the transaction is considered substantial and requires shareholder approval to ensure transparency and to prevent conflicts of interest.
Key Point: Under section 190 of the Companies Act 2006, substantial property transactions involving directors or their connected persons must be approved by shareholders if the transaction value exceeds certain thresholds. This requirement aims to safeguard against conflicts of interest and ensure that such transactions are conducted in the company's best interests.
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