Legal Question in Business Law in United Kingdom

Re: Legal advice please

Depending on the circumstances he may liable to the purchaser for the balance and may also be liable to repay to the company the installments for the shares the Company paid, if he is pursued by the liquidator or creditors. This is because Section 151 of The Companies Act prohibits the giving of financial assistance before or at the same time as the acquisition of shares and/or after the acquisition of shares.

There are both civil and criminal penalties for breach of the financial assistance prohibition. Usually The transaction itself is void and unenforceable. However, this may not help a party who has benefitted from the transaction. If a provision for illegal financial assistance is contained in a share purchase agreement, then it may be possible to sever the offending term. If the terms relating to the share purchase can be severed from the terms relating to the illegal financial assistance, then the terms relating to the acquisition can be enforced. If they cannot, then the whole agreement is void.

The criminal sanction for contravention of section 151 renders the company liable to a fine and every officer in default liable to a fine or up to two years' imprisonment or both. A director may also be liable for disqualification as a result of a company's involvement in a prohibited transaction under section 1, Company Directors Disqualification Act 1986.

It is presumed that the parties didn't have legal advice at the time as if they were not advised that the transaction was illegal by their solicitors this would be surprising. If they didn't take advice then its time to now!!