Hard2 marksMultiple Choice

Management, administration and the regulation of companiesManagement, administration and the regulation of companiesDirectors' duties

This question is part of a case study — click to read the full scenario(Case 55)

Section B - Scenario 4

HarvestYield plc is a large agricultural company. The board of directors decides to close a profitable local farm to consolidate operations in a mega-farm 100 miles away. This decision will devastate the local rural economy and cause 50 redundancies. The directors made the decision solely to increase the annual dividend for shareholders.

Under s.172 of the Companies Act 2006, have the directors breached their duty to promote the success of the company?

View full case study page →

ACCA · Question 56 · Management, administration and the regulation of companies

Section B - Scenario 4

HarvestYield plc is a large agricultural company. Director Thomas wants to sell his privately owned tractor to HarvestYield plc for £150,000. The company's net asset value is £2 million.

What is the legal requirement for this transaction under the Companies Act 2006?

Answer options:

It only requires approval by the board of directors.

It requires approval by an ordinary resolution of the shareholders because it is a substantial property transaction.

It requires a special resolution of the shareholders.

The transaction is strictly prohibited by law.

How to approach this question

Identify the rules regarding 'substantial property transactions' (s.190) between a company and its directors.

Full Answer

B.It requires approval by an ordinary resolution of the shareholders because it is a substantial property transaction.✓ Correct

Under s.190 of the Companies Act 2006, a company cannot acquire a substantial non-cash asset from a director (or vice versa) without the approval of the shareholders via an ordinary resolution. An asset is 'substantial' if its value exceeds £100,000, or if it exceeds £5,000 and is more than 10% of the company's net asset value. £150,000 exceeds the £100,000 threshold.

Common mistakes

Assuming the board of directors can approve the transaction without going to the shareholders.

Question 55 All questions Question 57

Practice the full ACCA LW — Corporate and Business Law Practice Exam 6

60 questions · hints · full answers · grading

More questions from this exam

Q01Section A In the context of the English legal system, which of the following statements accurate...Medium Q02Section A Which of the following courts binds the High Court but is NOT bound by its own previou...Medium Q03Section A In the context of the law of contract, which TWO of the following statements regarding...Medium Q04Section A Zephyr Ltd, a wind turbine manufacturer, promises to pay a £5,000 bonus to an independ...Hard Q05Section A In the tort of negligence, which of the following best describes the 'Caparo test' for...Medium

View all 60 questions →