Clause 41
Company Law Reform Bill [Lords]
6:00 pm
Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)
The clause retains the substance of section 322A of the Companies Act 1985. It applies to a transaction if or to the extent that its validity depends on clause 40, which is concerned with the powers of directors to bind a company. It provides that where the party to a transaction with the company is an insider, such as a director of the company or a person connected with such a director, the protection afforded by the clause does not apply. That is, the transaction will be voidable at the instance of the company. Irrespective of whether the transaction is voided, the insider, and any director who authorised the transaction, are liable to account to the company for any gain that they have made as a result of the transaction, and to indemnify the company for any loss or damage that it has incurred. However, where the insider is not a director of the company, it may be possible for him to avoid liability if he can show that at the time he entered into the transaction with the company he was unaware that the directors were exceeding their powers.
As now, under subsection (4) a transaction will cease to be voidable in certain circumstances, such as, for example, if a restitution of any money or asset that has been lost as a result of the transaction is no longer possible. It is purely transferring the substance of a section of the 1985 Act into the current Bill.