Directors' Transactions - Accounting and Legal Issues

OBJECTIVES

This course will provide a framework for identifying who is considered a director and the risks that they face under the Companies Act. There will also be a consideration of how transactions with directors are disclosed and accounted for.
Throughout the course, consideration will be given to identifying riskier situations and providing practical solutions.
This session will not cover taxation issues. For tax matters, please refer to the separate webinar on “Directors' Transactions - s455 Tax, Beneficial Loans and other Tax Issues”.

Key topics

DEFINING A DIRECTOR

• There are three types
• Re Mumtaz Properties (2011)
• Who is a connected person under company law?
• Who are considered to be “family”?
• Important note

CONSIDERING LEGALITIES - PROPERTY TRANSACTIONS

• What is a property transaction?
• It has to be “substantial” though
• The approval condition
• Are there any exceptions?

CONSIDERING LEGALITIES – LOAN TRANSACTIONS

• What is a loan transaction?
• Loans
• Quasi-loans
• Other credit transactions
• Related arrangements
• Loan requirements for private companies (not associated with a plc) 9
• Basic position
• Connected persons
• Quasi-loans and credit transactions
• Member approval
• Loan requirements for plcs and associated companies
• Basic position
• Exemptions that are applicable to all companies
• Krikorian – A case that demonstrates joint and several liability

CONSIDERING LEGALITIES – DIVIDENDS

• The background
• What company law says about dividends
• If the last annual accounts are being used
• If interim accounts are being used
• If initial accounts are being used
• Disclosure in the accounts
• What happens if an illegal dividend is paid?
• What happens about an illegal dividend if the company is liquidated?
• Case analysis: Global Corporation v Hale 2019
• High Court decision
• The Court of Appeal's Decision
• How FRS 102 impacts on distributable profits
• Disclosing distributable and non-distributable profits
• Donald Booth, Charles Robert Wilkinson, and Jane Ann Compton v Clarence Kenneth Fredrick Booth and Others (2017)
• UK company law
• Findings
• Ruling
• Conclusion

WHAT DISCLOSURES ARE NEEDED FOR TRANSACTIONS INVOLVING CREDIT?

• Companies Act requirements
• 413 Information about directors' benefits: advances, credit and guarantees
• No exceptions to the disclosure
• Directors’ names do not need to be disclosed
• Overdrawn loan accounts
• Technical Factsheet 180

RELATED PARTIES: FRS 102 DEFINITIONS

• FRS 102 – Related party
• Key Management Personnel
• Close family

RELATED PARTIES: REQUIREMENTS OF UK GAAP

• FRS 105: Micro-entities
• FRS 102: Medium and large entities
• Example: Full FRS 102 disclosures
• Small companies: Company law disclosure
• Example: Related party disclosures

RELATED PARTIES AND FINANCIAL INSTRUMENTS

• FRS 102: The recognition criteria
• Loans that do not have a fixed term
• Presentation and ’53-week’ loans
• Going concern
• How do you account for the initial difference?
• Examples
• Example 1: Interest-free loan to director who is majority shareholder
• Example 2: Low-interest loan to director who is majority shareholder

LOANS FROM OWNER-MANAGERS TO SMALL ENTITIES

• Background
• FRS 102: Triennial amendment
• FRS 102: Amended wording
• Key point to remember
• Adopt it if you can!

WHO SHOULD ATTEND

The course will be of use to anyone involved in advising, or preparing accounts for, corporate clients as well as those individuals advising directors.