Other Provisions About the Board and its Officers

In one line

An act done by a person as a director stands even if his appointment turns out to have been defective; a director may not take a payment for loss of office on a transfer of the undertaking or of shares without disclosure to and approval by the members; a company may not swap assets with a director for anything other than cash without the members' prior approval on a registered valuer's valuation; and a One Person Company must record in writing every contract it makes with its sole member who is also its director.

In exam wording: section 176 validates the acts of a defectively appointed director; section 191 governs payment to a director for loss of office; section 192 restricts non-cash transactions involving directors; and section 193 governs the contract by a One Person Company with its sole member.

Why the law has this at all

Each of the four answers a different problem, and it is worth naming them separately, because that is how an answer should open.

Section 176 protects the outsider. A person dealing with a company cannot audit whether the director who signed was validly appointed. If a defect in appointment unravelled every act, no contract with a company would ever be safe.

Section 191 closes the takeover bribe. When a company is being sold, the easiest way to buy the directors' cooperation is to pay them personally for giving up office, out of money that would otherwise have improved the price to the shareholders. So the payment must be disclosed to the members and approved by them.

Section 192 closes the valuation trick. Sections 185 and 188 catch loans and contracts, but a company could still transfer land to a director in exchange for shares in his private company, and nobody would know what either was worth. So a non-cash swap needs the members' prior approval and a registered valuer's figure.

Section 193 answers the peculiar problem of the One Person Company, where the company, its only member and its director may all be the same human being. Without a record there would be no evidence at all of what was agreed, and nobody on the other side to give it.

Some words this chapter uses

A person connected with a director is the expression used in section 192; the Act elsewhere uses "person in whom the director is interested", as in section 185. A registered valuer is a valuer registered under section 247. Restitution means giving back what was received. Bona fide for value and without notice is the ordinary equitable formula protecting an innocent purchaser.

Defects in appointment: section 176

No act done by a person as a director shall be deemed to be invalid, notwithstanding that it was subsequently noticed that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provision contained in this Act or in the articles of the company.