Transactions with Directors

Company directors are in a special position as regards to their relationship with the company of which they are a director. A director, or number of directors acting together, can exercise considerable power over the assets of a company - assets which ultimately belong to the company’s shareholders and which may be required to discharge debts owed to the company’s creditors. Because of this special position, company law contains a number of provisions designed to prevent directors from abusing their positions and thereby potentially, or actually, adversely affecting the interests of a company’s shareholders or creditors.

In order to protect shareholders from the abuse of power by directors, company law requires that where the directors of a company wish to purchase an asset from, or sell an asset to the company, the transaction must first be approved by the shareholders. However, in order to minimise the administrative burden on companies, where the value of the asset in question is less than a certain amount, pre-approval is not required.

In the event that the directors enter into such a transaction without the required pre-approval of the shareholders, the company can choose to set the transaction aside and render the transaction void.

Any director or other person who authorises a transaction without the shareholders' approval is liable to account to the company for any gain made by that person and reimburse the company for any loss suffered by it as a result.

At the outset it should be noted that this topic is of no application to private companies. The effect of the prohibition is to make it an offence for company directors to deal in options to buy or sell relevant shares or debentures in a company, its subsidiary companies, its holding company or other subsidiaries of its holding company in respect of which dealing facilities are provided by a Stock Exchange.