Relevant Assets Exception
Directors are advised that, where they wish to avail of this exception, they should ensure that they make themselves aware of the value of 10% of the company’s relevant assets at the time the transaction is being considered. This is because any officer of a company who authorises or permits a company to enter into an arrangement knowing, or having reasonable cause to believe, that the company in entering into the arrangement is contravening the general prohibition is guilty of an offence.
It is possible that, while at the date the arrangement was entered into by the company the value of the arrangement or aggregate arrangements was less than 10% of the company’s relevant assets, the value of the arrangements can subsequently exceed 10% of the relevant assets for a variety of reasons including, for example, because of a fall in the value of those assets.
Under such circumstances the directors are required to amend the terms of the arrangements thereby bringing the aggregate value of the arrangements back to within the 10% limit within a period of two months of becoming aware. While failure to amend the terms within two months is not an offence, it does render the arrangement voidable at the insistance of the company.
In circumstances where the aggregate value of arrangements comes to exceed 10% of the company’s relevant assets, it is recommended that directors should seek professional accountancy or legal advice in a prompt manner prior to deciding the most appropriate course of action to bring the aggregate of the arrangements back to within the 10% limit. This is because some of the methods by which the terms might be amended could potentially give rise to taxation or other implications.
The value of a company’s net assets is the aggregate of its assets less the aggregate of its liabilities including any provisions for liabilities or charges.