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Companies Act 2006

Section 41: Constitutional limitations: transactions involving directors or their associates

127.This section restates section 322A of the 1985 Act. It applies to a transaction if, or to the extent that, its validity depends on section 40 and provides that where the party to a transaction with a company is an “insider” (for example, a director of the company or person connected to such a director – see subsection (2)(b)(i) and (ii)), then the protection afforded by that section will not apply. Instead, the transaction will be voidable at the instance of the company.

128.Irrespective of whether the transaction is avoided, the “insider” and any director who authorised the transaction is liable to account to the company for any gain he has made as a result of the transaction and to indemnify the company for any loss or damage that the company has incurred (seesubsection (3)). 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 (see subsection (5)).

129.As now, under subsection (4), a transaction will cease to be voidable in certain circumstances, for example, if restitution is no longer possible.

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