Shepherd and Wedderburn LLP
  June 3, 2005 - Scotland

I am a Company Director and Propose to Purchase a Property from the Company That it No Longer Needs. What Issues I Should Consider Before Proceeding?
  by James Will

As a director you have a duty to act honestly, in good faith and in the best interests of the company. This means you must take proper care of the company's assets and ensure that you don't profit from your position. To this end, when purchasing property from the company, the purchase price should reflect the current market value. Selling the property at the going rate, as verified by an independent assessor, will help to show that the board has acted properly as well as demonstrating your lack of intention to profit. All decisions of the directors regarding the sale of the property should be taken at a quorate board meeting. Section 317 of the Companies Act 1985 places a duty on a director interested in a proposed transaction with the company to declare the nature of that interest at a board meeting. In addition, the articles of the company should be checked to see if you are entitled to vote on a decision in which you have an interest and be counted in the quorum. Shareholder consent to the sale may also be required under section 320 of the Companies Act 1985. An arrangement by the company to sell a property to a director needs shareholder approval, where the value of the property exceeds £100,000 or 10 per cent of the company’s net assets. In either case, the main terms of the deal should be approved by the company at a general meeting before proceeding. In a business climate where directors' actions are under increasing scrutiny, it is advisable for any director contemplating such a purchase to take legal advice and avoid the pitfalls of breaches of duty and statute.


Footnotes:
James Will is Head of Corporate Finance with commercial law firm Shepherd+ Wedderburn
+44 (0)131 473 5318