When a company is purchasing an asset from a director or its connected persons, the company law considerations that must be followed are:
- Section 238 requirements
Section 238 of CA 2014 states that a director of a company or its holding company or their connected persons (as defined in Section 220 of CA 2014) cannot enter into an arrangement where:
- that person acquires or is to acquire, one or more non-cash assets of the ‘requisite value’ from the relevant company, or
- the company or its holding company acquires or is to acquire, one or more non-cash assets of the requisite value from such a director or a connected person,
unless the arrangement is first approved—
- by an ordinary resolution of the relevant company in general meeting or alternatively by written resolution under Section 193 or 194 CA 2014, and
- if the director or connected person is a director of its holding company or a person connected with such a director, by a resolution of the holding company in general meeting.
The ‘requisite value’ is defined in Section 238(2) as an amount:
- equal to or greater than €5,000 but
- where 10% of the net assets of the company/holding company as determined from the last financial statements laid before the members at the AGM (or deemed to be where the requirement for an AGM has been done away with there is a ‘LTD’) exceeds the €5,000 then this amount can be used but subject to a maximum of €65,000 (i.e. the amount is either €5,000 or if the 10% net asset rules are higher that amount subject to a max of €65,000. For example Company A 10% of net assets equals €35,000, then the requisite value would be €35,000 as it is greater than €5,000). Note if there are no financial statements laid before the members at the AGM (as it is a new company) then you take 10% of the share capital of the company.
In this case as an asset is being sold to the director, then unless the members pass an ordinary resolution, then the transaction cannot take place. Therefore the directors should either arrange for a written resolution under Section 193 (if every members signs) or Section 194 (where majority of the member sign this) to be signed approving the transaction or alternatively if the directors wish to call an Extraordinary general meeting (EGM) and have the ordinary resolution passed at that meeting (if the EGM route is taken – ensure that at least 21 clear days’ notice is given as is required by Section 181 CA 2014 unless the parties consent to short notice).
Where the transaction has been entered into under Section 238(3) CA 2014, this transaction is voidable at the instance of the company unless:
- an ordinary resolution is passed within a reasonable period of time after the date in which the arrangement was entered into.
- refunding of the money or the non-cash asset is no longer possible or it has been made good by another party;
- where someone external to the arrangement would be affected by the transaction being voided;
Non-cash asset defined
A “non-cash asset” as stated in Section 238(8) CA 2014 means any property or interest in property other than cash, and for this purpose “cash” includes foreign currency.
Any reference to the acquisition of a non-cash asset includes a reference to the creation or extinction of an estate or interest in, or a right over, any property and also a reference to the discharge of any person’s liability other than a liability for a liquidated sum.
Exclusions from Section 238 as stated In Section 238(4):
- where the transaction is with companies within the same group; or
- where the company is being wound up (with the exception of members voluntary winding up in which case it is required);
- where the disposal is by a receiver.
Sample wording for the special resolution would be as follows:
“That, pursuant to the provisions of Section 238 of the Companies Act 2014 the purchase by the Company of Details of Property of which Name of Director has an interest as a beneficiary, be approved.”
OR
‘That the Company be and is hereby authorised and empowered pursuant to Section 238 of Companies Act 2014 to enter into and complete arrangements to transfer part of the Company’s undertaking, assets and liabilities (including non-cash assets within the meaning of Section 238) to XYZ Limited, a company connected with the directors of the company in return for the issue and allotment of shares in XYZ to ABC Limited’
OR
‘That, the entry by the Company into the share exchange Agreement in the form attached and for the purposes of identification, marked with the letter ‘A’ be and is hereby approved in accordance with Section 238 Companies Act 2014’
OR
“THAT the proposed acquisition by the Company of the trade, certain assets and liabilities of XYZ (more particularly described in the letter of offer attached hereto) be and is hereby approved pursuant to the provisions of Section 238(1)(b) of the Companies Act 2014.”
See also minutes of a board meeting where the requirements for Section 238 Companies Act 2014 were considered in relation to the acquisition of a sole trader business owned by the director of the Company acquiring it.