How do Sections 230(2) and 230(4) of the Companies Act differ for private firms?

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Differences in Director Fee Approval for Private Companies Under Sections 230(2) and 230(4) of the Companies Act

For private companies, Section 230(2) of the Companies Act outlines the initial approval process for directors' fees and benefits, while Section 230(4) provides a mechanism for shareholder intervention if such payments are deemed unfair. Specifically, Section 230(2) permits the Board of Directors, in accordance with the company's constitution, to approve fees and benefits payable to directors. However, this approval must be formally recorded in the minutes of the directors' meeting, and shareholders must be notified of this decision within 14 days.
Board Approval Authority Under Section 230(2)

Section 230(2) grants the Board of Directors the authority to approve directors' fees and benefits, provided it aligns with the company's constitution. This initial approval is a prerequisite for any payment. Following such board approval, Section 230(3) mandates that the decision be documented in the meeting minutes and that shareholders be informed within a 14-day window.
Shareholder Intervention Mechanism in Section 230(4)

Section 230(4) introduces a crucial safeguard by empowering shareholders. If members holding at least 10% of the total voting rights believe that a payment approved under Section 230(2) is not fair to the company, they have the right to demand a resolution. This resolution can be sought either through a written resolution or at a general meeting, and this action must be initiated within 30 days of the shareholders becoming aware of the payment.
Consequences of Non-Compliance

The distinction between these sections is critical due to the legal ramifications of non-compliance. If the approval process outlined in Section 230(2) and (3) is not followed, or if a subsequent shareholder resolution under Section 230(4) is required but not obtained, the payment is considered a debt owed by the director back to the company, as stipulated in Section 230(5). Furthermore, contravening these provisions constitutes an offence, with potential fines for the company and its officers.
Application to TH Properties

The findings of the Royal Commission of Inquiry (RCI) highlighted a breach of these provisions by TH Properties. The RCI noted that bonus payments made in 2017 and 2018 by TH Properties, a private company, did not obtain the necessary approvals and shareholder resolutions as required by Sections 230(2), (3), and (4) of the Companies Act 2016. This suggests a failure to adhere to both the board's initial approval protocols and the shareholders' right to intervene in potentially unfair payments.

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How do Sections 230(2) and 230(4) of the Companies Act differ for private firms?

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