The sections, word for word
Every section on this subject, exactly as printed in the Official Gazette (Act No. 3 of 2020). The explanation follows beneath.
Section 310. Substantial property transactions involving directors
(1) Subject to the exceptions provided by section 311 of this Act, a company shall not enter into an arrangement whereby—
(a) a director or controlling member of a company or its holding company, or a person connected with such a director or controlling member, acquires or is to acquire one or more non- cash assets of the requisite value from the company ; or
(b) the company acquires or is to acquire one or more non-cash assets of the requisite value from such a director or controlling member or a person so connected, unless the arrangement is first approved by a resolution of the company in general meeting after being informed of all material facts relating to the transaction and if the director, controlling member or connected person is a director of its holding company or a person connected with such a director or controlling member, by a resolution in general meeting of the holding company after being informed of all material facts relating to the transaction.
(2) For the purpose of subsection (1), a non-cash asset is of the requisite value if, at the time the arrangement in question is entered into, its value is not less than an amount the Commission may by regulation prescribe”.
(3) A person is a controlling member of a company if that person, either alone or in an understanding with other persons, has more than 50% of the voting power to elect or remove directors of the company.
(4) For the purposes of this section and sections 311 and 312 of this Act, a shadow director is treated as a director.
Section 311. Exceptions from section 310
(1) No approval shall be required to be given under section 310 of this Act by any body corporate unless it is a company within the meaning of this Act, or if it is a wholly-owned subsidiary of anybody corporate.
(2) Section 309 of this Act does not apply to an arrangement for the acquisition of a non- cash asset if—
(a) the asset is to be acquired by a holding company from any of its wholly- owned subsidiaries or from a holding company by any of its wholly-owned subsidiary of a holding company from another wholly-owned subsidiary of that same holding company ; or
(b) the arrangement is entered into by a company which is being wound up, unless the winding-up is a member’s voluntary winding-up.
(3) Section 310 (1) (a) does not apply to an arrangement whereby a person is to acquire an asset from a company of which he is a member, if the arrangement is made with that person in his character as a member.
Section 312. Liabilities arising from contravention of section 310
(1) An arrangement entered into by a company in contravention of section 310 of this Act and any transaction entered into in pursuance of the arrangement (whether by the company or any other person), is voidable at the instance of the company or voidable by a court on its decision on a claim by members, unless one or more of the conditions specified in subsection (2) is satisfied.
(2) The conditions are that—
(a) restitution of any money or other asset which is the subject-matter of the arrangement or transaction is no longer possible or the company has been indemnified in pursuance of this section by any other person for the loss or damage suffered by it ;
(b) any right acquired bona fide for value and without actual notice of the contravention by any person who is a party to the arrangement or transaction would be affected by its avoidance ; or
(c) the arrangement is, within a reasonable period, ratified and affirmed in full accordance with the requirements for advance approval set out in section 311 of this Act.
(3) If an arrangement is entered into with a company by a director of the company or its holding company or a person connected with him in contravention of section 310 of this Act, that director, controlling member and person so connected, and any other director of the company who authorises the arrangement or any transaction entered into in pursuance of such an arrangement, commits an offence and liable—
(a) to account to the company for any gain which he has made and any loss or damage suffered by the company, directly or indirectly by the arrangement or transaction,
(b) directly and derivatively to members of the company for any loss or damage suffered by them,
(c) jointly and severally with any other person liable under this subsection, to indemnify the company for any loss or damage resulting from the arrangement or transaction,where found guilty and convicted of an offence guilty of the office, disqualified to serve as a director of the company.
(4) In any action referred to in this section the plaintiff has the right to obtain any relevant documents from the defendant and the witnesses at trial, and may request categories of documents from such person without identifying specific documents.
(5) This section is without prejudice to any liability imposed than by this section, and is subject to subsections (6)-(7) and the liability under subsection (3) arises whether or not the arrangement or transaction entered into has been avoided under subsection (1) of this section.
(6) If an arrangement is entered into by a company and a person connected with a director of the company or its holding company in contravention of section 310 of this Act, that director is not liable under subsection (3) if he shows that he took all reasonable steps to secure the company’s compliance with that section.
(7) This section has effect with respect to references in sections 310, 311 and 312 of this Act to a person being “connected” with a director of a company, and to a director being “associated with” or “controlling” a body corporate.
(8) A person is connected with another person if he is—
(a) that other person’s spouse, child or step-child, including illegitimate child ;
(b) a body corporate with which the person is associated ; or
(c) a person acting in his capacity as trustee of any trust, the beneficiaries of which include—
(i) the director, his spouse, any children or step-children, or
(ii) a body corporate with which he is associated, or of a trust whose terms confer a power on the trustees that may be exercised for the benefit of the person, his spouse or any children or step-children of his, or any such body corporate ; or
(d) a person acting in his capacity as partner of that director or of any person who, by virtue of paragraphs (a), (b) or (c), is connected with that director.
Section 313. Prohibition of secret benefits
(1) A director shall not accept a bribe, a gift, or commission either in cash or kind from any person or a share in the profit of that person in respect of any transaction involving his company in order to introduce his company to deal with such a person.
(2) If a director contravenes the provisions of subsection (1), he commits a breach of duty and the company shall recover from the director the actual gift and sue him and the other person for damages sustained without any deduction in respect of what the director has returned.
(3) Where the gift is made after the transaction has been completed in a form of unsolicited gift as a sign of gratitude, the director may be allowed to keep the gift, provided he declares it before the board and that fact shall also appear in the minutes book of the directors.
(4) In all cases concerning secret benefits, the plea that the company benefited or that the gift was accepted in good faith is not a defence.
What this means
Short answer
A company may not buy a non-cash asset of the requisite value from a director or controlling member, or sell one to them, unless the members approve the arrangement in general meeting first (section 310). A director may not accept a bribe, gift or commission for introducing the company to a deal (section 313).
The approval rule in section 310
Section 310(1) bars a company from entering an arrangement where a director or controlling member of the company or its holding company, or a person connected with either, acquires a non-cash asset of the requisite value from the company, or the company acquires one from them. The arrangement is allowed only if a general meeting first approves it after being told all the material facts. Where the person is also linked to the holding company, the holding company’s general meeting must approve it too.
- A non-cash asset is of the requisite value if it is worth at least the amount the Commission prescribes by regulation (section 310(2)).
- A controlling member is a person who, alone or with others by understanding, has more than 50% of the voting power to elect or remove directors (section 310(3)).
- A shadow director is treated as a director (section 310(4)).
Exceptions
Under section 311, no approval is needed for transfers between a holding company and its wholly-owned subsidiaries, or between wholly-owned subsidiaries of the same holding company. It is also not needed for an arrangement by a company that is being wound up, unless the winding up is a members’ voluntary winding up. And section 310(1)(a) does not apply where a person acquires an asset from a company of which he is a member, if the arrangement is made with him as a member.
What happens if the rule is broken
Under section 312, an arrangement made in breach of section 310, and any transaction under it, is voidable by the company or, on a members’ claim, by a court. It stays valid if restitution is no longer possible or the company has been indemnified, if a third party’s rights acquired in good faith and for value would be affected, or if the arrangement is ratified within a reasonable period on the same basis as advance approval.
The director, controlling member and connected person, and any other director who authorised the arrangement, commit an offence and must account to the company for any gain and for the company’s loss. They are also liable to members for their loss and must indemnify the company jointly and severally. A director who is convicted may be disqualified from serving. A director is not liable for an arrangement with a person connected to him if he shows he took all reasonable steps to secure the company’s compliance (section 312(6)).
A person is connected with a director if he is the director’s spouse, child or step-child (including an illegitimate child), a body corporate the director is associated with, a trustee of a trust benefiting those people, or the director’s partner (section 312(8)).
Secret benefits
A director must not accept a bribe, gift or commission, in cash or kind, or a share in the profit of a person, for introducing the company to a transaction with that person. The company can recover the gift and sue the director and the other person for damages without any deduction for what the director has returned (section 313(1) and (2)). A genuinely unsolicited gift of gratitude made after the transaction is complete may be kept if the director declares it to the board and it is recorded in the minutes (section 313(3)). It is no defence that the company benefited or that the gift was accepted in good faith (section 313(4)).
Questions and answers
Who is a controlling member?
A person who, alone or by understanding with others, has more than 50% of the voting power to elect or remove directors of the company (section 310(3)).
What happens to a deal made without member approval?
It is voidable by the company, or by a court on a members’ claim, unless restitution is impossible, third-party rights acquired in good faith would be hurt, or it is ratified in time (section 312).
Can a director keep a thank-you gift from a supplier?
Only an unsolicited gift of gratitude given after the transaction is complete, and only if the director declares it to the board and it appears in the minutes (section 313(3)).
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