SCENARIO 4: AquaGrid PLC, a regional water utility, is considering a major infrastructure upgrade. The board of directors is split. Director A wants the cheapest option to maximize short-term shareholder dividends. Director B wants a more expensive, eco-friendly option, arguing it benefits the local community and ensures long-term sustainability, even if it reduces dividends this year.
Under Section 172 of the Companies Act 2006 (Duty to promote the success of the company), which approach is legally correct?
ACCA · Question 56 · Corporate and Business Law
SCENARIO 4: AquaGrid PLC, a regional water utility, is considering a major infrastructure upgrade. The board of directors is split. Director A wants the cheapest option to maximize short-term shareholder dividends. Director B wants a more expensive, eco-friendly option.
Director A owns a piece of land valued at £150,000. AquaGrid PLC (which has net assets of £2 million) wishes to buy this land from Director A to build a new pumping station. Under the Companies Act 2006, what specific procedural requirement must be met for this transaction to be valid?
Answer options:
It only requires approval by the board of directors, provided Director A does not vote.
It must be approved by an ordinary resolution of the shareholders, as it is a substantial property transaction.
It must be approved by a special resolution of the shareholders.
The transaction is strictly prohibited by law.
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