𝗖𝗼𝗺𝗺𝗼𝗻 𝘀𝗰𝗲𝗻𝗮𝗿𝗶𝗼 𝗶𝗻 𝗜𝗣𝗢

X is a director and shareholder of Company A as well as Company B.

Company A intends to undertake an IPO and a listing exercise. Company A enters into an agreement (“𝗦𝗣𝗔”) with X and other shareholders of Company B to acquire all the shares of Company B as part of pre-IPO restructuring prior to Company A being listed.

𝗗𝗶𝘀𝗰𝗹𝗼𝘀𝘂𝗿𝗲 𝗼𝗳 𝗱𝗶𝗿𝗲𝗰𝘁𝗼𝗿𝘀’ 𝗶𝗻𝘁𝗲𝗿𝗲𝘀𝘁

Section 221(1) of the Companies Act 2016 (“𝗖𝗔”) requires every director of a company who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company to, as soon as practicable after the relevant facts have come to the director’s knowledge, declare the nature of his interest at a meeting of the board of directors.

In the scenario above, X must declare his/her interest in the SPA to the board of directors of Company A pursuant to section 221(1) of the CA. In practice, the declaration is typically set out in the directors’ circular resolution of Company A passed to approve the acquisition of Company B.

In the event X’s spouse (who is not a director of Company B) or X’s child (who is not a director of Company B and child includes adopted child or step child) also has an interest in the shares of Company B, such interest is treated as an interest in the SPA pursuant to section 221(9) of the CA. In such circumstances, X’s declaration of interest in the SPA must include his/her spouse’s or child’s interest.

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This post was first posted on Linkedin on 2 July 2021.