Directors Property Transactions

Section 29 Companies Act, 1990

Requirement for shareholders’ approval

To provide protection to shareholders against the abuse of power by a company’s director, Section 29 of the Companies Act, 1990 provides that a company cannot enter into any arrangement with a director of the company, director of the company’s holding company or a person connected with a director whereby a person referred to above acquires or is to acquire a non-cash asset from the company, or the company acquires or is to acquire a non cash asset from a person referred to above, unless the arrangement is first approved by a resolution passed at a meeting of the company’s shareholders.

If the director or connected person is a director of the company’s holding company or a person connected with such a director, approval by a resolution in general meeting of the holding company is also required. The requirement for pre-approval only applies where the value of the asset is equal to or greater than €1,270 and exceeds the lesser of €63,487 or 10% of the company’s relevant assets.

Civil consequences of a breach of Section 29 - Companies Act 1990

A transaction entered into in contravention of the above requirement is generally voidable at the instance of the company.

The company can cancel the transaction without any time limit, unless:

• Restitution of any money or any other asset which is the subject matter of the arrangement or transaction is no longer possible or the company has been indemnified by another person for the loss suffered by it
• A person other than the person for whom the transaction or arrangement was made legitimately acquired rights which would be affected by voiding the transaction or arrangement, where they were acquired for value and without actual notice of the contravention
• The arrangement is, within a reasonable period, affirmed by the company in general meeting and, if it is an arrangement for the transfer of an asset to or by a director of its holding company or a person who is connected with such a director, is so affirmed with the approval of the holding company given by a resolution in a general meeting

Where an arrangement which breaches section 29 is entered into by a director or a person connected with a director, that director or connected person as well as any other director of the company who authorised the arrangement is liable to

• Account to the company for any gain made directly or indirectly as a result of the arrangement
• Indemnify the company for any loss or damage suffered as a result of the arrangement

Unless:

• The director can show that he took all reasonable steps to secure the company’s compliance with the section
• The connected person can show that, at the time the arrangement was entered into, he/she did not know that the arrangement constituted a breach of the section

It should be noted that a director’s liability as set out above continues to exist irrespective of whether or not the company has elected to void the transaction.