Directors’ dealings

25 February 2009

Issue: 4195 / Categories: Forum & Feedback , Companies

A property development company has difficulty selling some of its properties and these are purchased by the directors. These properties are subsequently sold by the director at a substantial profit

A property development company has recently developed a large building and converted it into about 50 separate apartments.

Because of market conditions it was unable to sell 16 apartments and these were purchased by the two directors of the company (who are also each 50% shareholders) at a discounted price; or at least at a price which is less than that for which the flats that have been sold achieved.

This is because the directors can only obtain finance to fund the purchase for 80% of the market value. The difference could have been made up of funds from the directors’ loan accounts within the company but they did not wish to use these and have repaid the loans from the funds received for the apartment sales.

The directors contend that the price they paid for the apartments was the market value.

They may well be correct ...

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