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CS Professional · Corporate Restructuring, Valuation and Insolvency · Acquisition of Company or Business

Orion Engineering Ltd, while buying a business undertaking, plans to invest in a target's securities. At the Board meeting, five directors are present; four vote in favour and one dissents. Orion has a term loan from a public financial institution, and its aggregate loans and investments, with this proposal, exceed the section 186(2) limit. Which statement is correct under section 186(5)?

The resolution fails. Section 186(5) requires the consent of all directors present at the Board meeting, so one dissent defeats it, and because a term loan subsists and the limit is exceeded, prior approval of the public financial institution is also required.

  1. AThe resolution is valid as a simple majority of directors present approved it
  2. BThe resolution is valid if the dissenting director's objection is recorded
  3. CThe resolution fails as all directors present must consent, and prior approval of the public financial institution is also neededCorrect
  4. DOnly the institution's approval is required, not unanimous Board consent

Explanation

Section 186(5) requires the Board resolution to be passed with the consent of all directors present, so one dissent defeats it. Prior approval of the public financial institution is needed where a term loan subsists, and the proviso exemption fails because the limit is exceeded. A majority is therefore insufficient.

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