Blog smartproperty legal

How can a shareholder prevent a director from selling company assets?

One shareholder fired the other from the company director’s post, leaving himself as the sole director of the company, and listed the company's real estate for sale without the other shareholder's permission. How can a shareholder prevent a director from selling company property?

Usually, a company’ directors are not required to seek shareholders’ permission to sell the company’s assets (the property in this scenario). This would be the sole director’s decision only. But if the sole director sells off the assets so that the company cannot trade then he is likely to be exposing himself to a claim for breach of duty as a director and, as consequences, the court may order this director to financially compensate to the company (or transfer the property back to the company’s name).

It is important to check the company’s articles of association, because if they are not model articles, but tailored ones, they may contain a condition that directors shall seek shareholders’ approval if a transaction is exceeding a certain amount. 

A fired director (who is also a current shareholder) can impose a restriction at the Land Registry on the sale of the company real estate. However, this shareholder needs to show to the Land Registry that he/she has a sufficient interest in this property, for example, that there is an agreement in place between shareholders which regulates the property purchase and sets amounts of each shareholder’s contribution to the property purchase.