Case Background & Strategy

Section 228 of the Companies Act 2016 prohibits a company from entering into an arrangement or transaction of ‘requisite value’ to acquire from, or dispose of to, a director, substantial shareholder, or person connected with them, any non-cash asset — unless prior shareholder approval is obtained at a general meeting. The interested person must abstain from voting.

When is section 228 triggered?

Three questions decide it: (1) is the counterparty a director, substantial shareholder, or connected person of either, of the company or its holding company; (2) is the subject matter a non-cash asset; and (3) does its value meet the ‘requisite value’ threshold, assessed against the company’s asset value. Directors dealing with their own companies — buying company property, selling assets into the company, taking over business lines — are the paradigm cases.

Approval and abstention

Approval must come from shareholders at a general meeting before the transaction (or conditional upon such approval), with the interested person and persons connected with them abstaining. For transactions involving a director or substantial shareholder of the holding company, the holding company’s shareholders must also approve.

Consequences of contravention

A transaction in breach is voidable at the company’s instance, and the interested director or shareholder — and directors who authorised the deal — may be liable to account for gains and indemnify the company for loss. In oppression and derivative litigation, section 228 non-compliance is frequently the sharpest arrow in the quiver, because it converts a commercial complaint into a statutory contravention.

Frequently asked questions

Does section 228 apply to cash payments?

The section targets non-cash assets; cash transactions may instead engage directors’ duties, section 224 or fraudulent trading principles.

Can shareholder approval be obtained after completion?

The statute contemplates prior approval. Completing first and seeking ratification later leaves the transaction exposed.

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