Company law insight: Substantial property transactions

A recent High Court judgment shone a light on a type of transaction that is subject to a strict requirement to obtain shareholder approval before it is entered into, known as substantial property transactions.

MetalNRG plc v BritENERGY Holdings LLP and others focused on a transaction that involved two contractual arrangements that featured a director or a person connected to a director:

  1. a conditional share purchase agreement where the claimant was to acquire shares in the third defendant (which included a director of the claimant who owned shares in that defendant).
  2. a conditional option agreement whereby the first defendant granted the claimant an option to purchase shares in the third defendant (and the first defendant was 70% owned by a company wholly owned by the wife of a director of the claimant).

Section 190 of the Companies Act 2006 (the “Act”) states that a company may not enter into an arrangement under which a director or person connected with a director acquires or is to acquire a substantial non-cash asset unless the arrangement has been approved by shareholders.

The key points of a “substantial property transaction” are highlighted above. The two questions in MetalNRG were whether conditional agreements fell under section 190 and whether the assets involved were ‘substantial’.

The answer was yes to both. Firstly, the court dismissed the argument that a conditional agreement fell outside of section 190. The two agreements created obligations “to acquire” shares, focusing on that phrasing in the section itself. Secondly, the court pooled the value of the assets under the two agreements on the basis that they formed part of a wider arrangement. As such, both agreements should have been approved by shareholders and had not been, so the claimant was entitled to rescind them.

Transactions between companies and directors, or persons connected to them, can be common and substantial property transactions are one example which, under company law, requires shareholder scrutiny. Let’s look at those key points.

“An arrangement”

This can be both a contractual arrangement and a non-binding agreement or understanding. The company in question must enter into the arrangement but the director (or connected person) need not to.

“Director or person connected with a director”

This is a director of the company or of its holding company or a person connected with such a director. There is a list contained in Section 252 of the Act which includes:

  • A member of the director’s family (spouse, children and parents are included)
  • A corporate body with which the director is connected (through ownership of shares or voting rights above 20%)
  • A person acting in their capacity as trustee of a trust where the director is a beneficiary or a beneficiary is otherwise connected to the director

“Acquires or is to acquire”

This can extend to any arrangement or dealing by way of sale, exchange, gift or anything else and can be both in respect of the acquisition of an interest or right over an asset or property, or the discharge of a liability.

The words “is to acquire” is relevant where there is a high degree of certainty of the acquisition taking place. As we saw in MetalNRG, it was determined that the obligation to acquire shares was there and it was simply dependent on certain eventualities.


An asset is substantial if its value exceeds:

  • 10% of the company’s asset value and is more than £5,000, or
  • £100,000.

“Non-cash asset”

In the Act this is simply put as meaning any property or interest in property other than cash.

The above is a simple outline of the key elements which form a ‘substantial property transaction’ for the purposes of section 190 of the Act. In each case the analysis can be more complex and there are certain exceptions.

Should you require any more information on substantial property transactions then please contact a member of the Corporate team.

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