Triple H, Undertaker Austin and Flair are directors of Mieleka Ltd a company regulated Table A. Fair is the managing director and undertaker is the chairperson of the company. Sometime ago the directors meeting as a board decided to:
i) Lend Triple H Shs.500,000 to purchase a car for his wife Stephane for her personal use;
ii) Advance Shs.500,000 to Austin to cover his expenses on a worldwide (promotional tour on behalf of the company).
Booker T, the company secretary informs you that Stone Cold a shareholder claims that this transaction should have been approved the members and that he intends to raise the matter during the next general meeting.
i) Advise Booker T which of the transactions need approval the members in general meeting
ii) What are the consequences of the necessary approval not being obtained?
The transaction to advance Shs.500,000 to Austin to cover his expenses on worldwide promotional tour on behalf of the company required prior approval members in general meeting pursuant to the proviso to Sec.191(1) of the Act which permits a company to provide funds to a director to meet expenditure incurred or to be incurred him for the purposes of the company or for the purpose of enabling him properly to perform his duties as an office of the company.
Under Sec.191 (3) of the Act if the requisite approval is not given the company in general meeting the directors authorizing the making of the loan are jointly and severally liable to indemnify the company against any loss arising there from.