Conflict of Interest Transactions

Part 5 – Duties of Directors and Other Officers

The Companies Act 1990 contained two important provisions in relation to self-dealing directors. The first concerned substantial property transactions. The second dealt with situations where the company gave loans, guarantees, etc, in favour of a director.

Those two provisions are re-enacted in the Act.

• The rule on substantial property transactions is set out in Section 238.

• The rule on the company providing loans, etc, is set out in Section 239.

There are some modifications.

With regard to the rule on substantial property transactions:

1. The amounts previously specified have been rounded up (the minimum figure is €5,000; the maximum figure is €65,000).

2. No approval is required to be given under this section by a wholly owned subsidiary of any body corporate. This is new, and is stated in subsection (7).

3. The prohibition does not apply in relation to any arrangement for the acquisition of a non-cash asset if the arrangement involves the disposal of a company’s assets by a receiver. This is a new addition.

With regard to the prohibition on loans, etc, the new sections parallel the old sections and it should be noted that:

Section 242 provides that the prohibition does not apply if the Summary Approval Procedure is followed in respect of the relevant transaction.

• Intra-group transactions are – as before – not prohibited (Section 243).

• The voidability provision is re-enacted in Section 246.

• It is a Category 2 Offence – for any officer of the company – to enter into an arrangement that breaches the prohibition on loans set out in Section 239.

The following points should be noted:

1. The rules relating to contracts of employment of directors – previously found in Section 28 of the CA 1990 – are re-enacted here (Section 249).

2. The only new addition is subsection (5), which states that if the company wishes to approve a term of the director’s contract without passing a resolution at a general meeting, a memorandum setting out the proposed agreement – with the relevant term – must be circulated to the company’s members.

3. The rule that the company cannot make any payment to a director for loss of office, or in relation to retirement, without disclosing the details of the proposed sum to the members, and without them voting on the matter in general meeting, is re-enacted here (Section 251).

4. That rule does not apply to payments made bona fide in discharge of an existing legal obligation.

5. Approval at general meeting must also be obtained before a director can be paid compensation for the transfer of company property (Section 252).

6. The above rules are re-enactments of Sections 186, 187, and 188 of the 1963 Act.

7. Section 254 tries to prevent disguised payments to directors being made in relation to the above rules.

8. Contracts with sole members are dealt with here (Section 255). This section incorporates S.I. No. 275 of 1994.