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CS Executive · Company Law and Practice · Board Composition and Powers of the Board

The members of Orchid Pharma Ltd pass a resolution in general meeting inserting a new restriction on the Board's borrowing limits. Earlier, the Board had already taken a loan that was valid before the regulation was made. What is the effect under section 179?

The earlier loan remains valid. Section 179(2) states that a regulation made by the company in general meeting does not invalidate any prior act of the Board that would have been valid without that regulation. The new restriction operates only for future exercise of the power.

  1. AThe earlier loan becomes invalid because the regulation applies retrospectively
  2. BThe earlier loan stays valid, as a regulation does not invalidate a prior valid act of the BoardCorrect
  3. CThe earlier loan stays valid only if the members ratify it afterwards
  4. DThe members cannot impose any restriction on the Board's powers

Explanation

Section 179(2) says no regulation made by the company in general meeting invalidates any prior act of the Board that would have been valid had the regulation not been made. Section 179(4) preserves the members' right to impose restrictions, so the restriction is allowed but only operates forward.

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