Non-Cash Transaction With a Director: Section 192

A non-cash transaction with a director is an arrangement in which a company and one of its directors swap assets for something other than money, and section 192 of the Companies Act, 2013 does not let the Board approve one on its own. The arrangement needs prior approval by the members in general meeting, the notice of that resolution has to carry a registered valuer's number, and an arrangement entered into without either is voidable at the company's instance. This page covers all three. It is not investment advice.

Which arrangements count as a non-cash transaction with a director

Section 192(1) is a prohibition with a condition attached, and it is written in two directions so that neither side of the swap escapes it. No company shall enter into an arrangement by which:

• clause (a): a director of the company or its holding, subsidiary or associate company, or a person connected with him, acquires or is to acquire assets for consideration other than cash, from the company; or
• clause (b): the company acquires or is to acquire assets for consideration other than cash, from such director or person so connected

Three widenings sit in those clauses. The person need not be a director of the company itself, because directors of its holding, subsidiary and associate companies are named. A person connected with him is inside the section as much as the director is. And what is caught is the acquisition of assets for non-cash consideration in either direction, so a sale by the company and a purchase by it stand on the same footing.

The approval the section demands, and who has to give it

The prohibition lifts only where prior approval for such arrangement is accorded by a resolution of the company in general meeting. Two things follow from the way that is drafted.

The approval is prior. A resolution passed after the arrangement is entered into does not satisfy the sub-section on its own words.

And the approval is by the members, not by the Board. That separates section 192 from the ordinary disclosure of interest by a director, which is discharged at the Board table.

The second row is the escalation limb: where the director or connected person is a director of the holding company, approval under this sub-section shall also be required to be obtained by passing a resolution in general meeting of the holding company.

What must the notice of that resolution contain?

Section 192(2) fixes the content of the notice, in the company and in the holding company alike. It shall include the particulars of the arrangement along with the value of the assets involved in such arrangement duly calculated by a registered valuer.

That is a valuation requirement inside a notice requirement. The members are not asked to approve an arrangement described in general terms; they are given the particulars and a number produced by a registered valuer. For a listed company, the notice is a public document, which is what makes this sub-section useful to an outside reader.

The consequence of skipping the approval

Section 192(3) does not void the arrangement automatically. Any arrangement entered into by a company or its holding company in contravention of the provisions of this section shall be voidable at the instance of the company, and the sub-section then carves out two situations in which even that remedy falls away:

• clause (a): the restitution of any money or other consideration which is the subject matter of the arrangement is no longer possible and the company has been indemnified by any other person for any loss or damage caused to it; or
• clause (b): any rights are acquired bona fide for value and without notice of the contravention of the provisions of this section by any other person

So the remedy runs to the company, and it is defeated by a bona fide third party who took for value without notice. A shareholder reading a late disclosure of such an arrangement should read clause (b) before assuming the transaction can be unwound.

Where section 192 sits among the director dealing provisions

The Act restricts company to director dealings in several places, each with a different trigger, and they are easy to conflate:

• Section 192 catches non-cash asset arrangements and requires member approval with a registered valuer's number in the notice.
• Section 185 catches loans, guarantees and security to directors and the persons in whom they are interested.
• Section 188 related party transactions catch the listed contract types with a related party, with their own approval and disclosure route.
• Section 186 governs loans and investments by a company generally.

A single arrangement can sit inside more than one of them at once. Section 192 does not displace the others; it adds a member approval and a valuation to an arrangement that may already need them.

What reaches the public record

The visible trace of a section 192 arrangement is the general meeting that approves it. The notice carries the particulars and the registered valuer's figure, the resolution appears in the voting results a listed company files, and the arrangement itself will usually also surface in the related party disclosures in the annual accounts.

That makes the notice the document to read, and the valuer's number the line in it worth checking against what the company says the asset is worth elsewhere.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.