Companies Act 2006, section 41

Constitutional limitations: transactions involving directors or their associates

Part 4 A company's capacity and related matters

(1)This section applies to a transaction if or to the extent that its validity depends on section 40 (power of directors deemed to be free of limitations under company's constitution in favour of person dealing with company in good faith).

Nothing in this section shall be read as excluding the operation of any other enactment or rule of law by virtue of which the transaction may be called in question or any liability to the company may arise.

(2)Where—

(a)a company enters into such a transaction, and

(b)the parties to the transaction include—

(i)a director of the company or of its holding company, or

(ii)a person connected with any such director,

the transaction is voidable at the instance of the company.

(3)Whether or not it is avoided, any such party to the transaction as is mentioned in subsection (2)(b)(i) or (ii), and any director of the company who authorised the transaction, is liable—

(a)to account to the company for any gain he has made directly or indirectly by the transaction, and

(b)to indemnify the company for any loss or damage resulting from the transaction.

(4)The transaction ceases to be voidable if—

(a)restitution of any money or other asset which was the subject matter of the transaction is no longer possible, or

(b)the company is indemnified for any loss or damage resulting from the transaction, or

(c)rights acquired bona fide for value and without actual notice of the directors' exceeding their powers by a person who is not party to the transaction would be affected by the avoidance, or

(d)the transaction is affirmed by the company.

(5)A person other than a director of the company is not liable under subsection (3) if he shows that at the time the transaction was entered into he did not know that the directors were exceeding their powers.

(6)Nothing in the preceding provisions of this section affects the rights of any party to the transaction not within subsection (2)(b)(i) or (ii).

But the court may, on the application of the company or any such party, make an order affirming, severing or setting aside the transaction on such terms as appear to the court to be just.

(7)In this section—

(a) “transaction” includes any act; and

(b)the reference to a person connected with a director has the same meaning as in Part 10 (company directors).

Read section 41 in the full Act → Definitions (5) Cases (4)

Definitions used in section 41

enactment

In this Act, unless the context otherwise requires, “enactment” includes—

(a)an enactment contained in subordinate legislation within the meaning of the Interpretation Act 1978 (c. 30),

(aa)an enactment contained in, or in an instrument made under, a Measure or Act of the National Assembly for Wales,

(b)an enactment contained in, or in an instrument made under, an Act of the Scottish Parliament, and

(c)an enactment contained in, or in an instrument made under, Northern Ireland legislation within the meaning of the Interpretation Act 1978.

Defined in s.1293 · see it in the full Act
company

“company” means a company formed and registered under this Act, that is—

(a)

a company so formed and registered after the commencement of this Part, or

(b)

a company that immediately before the commencement of this Part—

(i)

was formed and registered under the Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)), or

(ii)

was an existing company for the purposes of that Act or that Order,

(which is to be treated on commencement as if formed and registered under this Act).

Defined in s.1(1) · see it in the full Act

(4) In this section and that Schedule “company” includes any body corporate.

Defined in s.1159(4) · see it in the full Act
director

In the Companies Acts “director” includes any person occupying the position of director, by whatever name called.

Defined in s.250 · see it in the full Act
holding company

(1) The Secretary of State may by regulations amend the provisions of section 1159 (meaning of “subsidiary” etc) and Schedule 6 (meaning of “subsidiary” etc: supplementary provisions) so as to alter the meaning of the expressions “subsidiary”, “holding company” or “wholly-owned subsidiary”.

Defined in s.1160(1) · see it in the full Act
the court

(1) Except as otherwise provided, in the Companies Acts “the court” means—

(a)in England and Wales, the High Court or the county court;

(b)in Scotland, the Court of Session or the sheriff court;

(c)in Northern Ireland, the High Court.

Defined in s.1156(1) · see it in the full Act

(2) The provisions of the Companies Acts conferring jurisdiction on “the court” as defined above have effect subject to any enactment or rule of law relating to the allocation of jurisdiction or distribution of business between courts in any part of the United Kingdom.

Defined in s.1156(2) · see it in the full Act

Cases considering section 41 (4)

Jusan Technologies Limited v Uconinvest LLC

[2025] EWHC 704 (Ch) · 24 March 2025Limits

Uses section 41 to identify the statutory treatment of transactions whose validity depends on section 40, particularly where directors or connected persons are parties (see paras [58]-[68]). Confirms that a transaction protected by section 40 may be voidable at the company’s instance where a director or connected person is a party. That situation did not apply to Uconinvest on the facts (see paras [58]-[68]). Interprets the provision as preserving the rights of parties who are not directors or connected persons. This supported the conclusion that shareholders are not generally excluded from section 40 protection (see paras [58]; [65]-[68]). Confirms that transaction includes any act for the purposes of section 41, reinforcing the statutory treatment of acts connected with a transaction (see para [59]).

Sargespace Ltd v Eustace

[2013] EWHC 2944 (QB) · 3 October 2013Limits

The court held that the statutory connected-person provision did not apply because the defendant had never lived with the director as a partner. It therefore did not make the alleged transfer voidable on the claimant’s proposed basis. (see para [36])

Yodel Delivery Network Limited v Jacob Corlett & Ors

[2025] EWHC 3355 (Ch) · 19 December 2025

The court held, alternatively, that the warrant granted to Shift would be voidable by Yodel because Mr Corlett, who authorised the transaction, held approximately 20% of Shift. (see para [277])

What each judgment says about section 41 is in the case-law panel in the full Act.

Explanatory note

127.This section restates section 322A of the 1985 Act. It applies to a transaction if, or to the extent that, its validity depends on section 40 and provides that where the party to a transaction with a company is an “insider” (for example, a director of the company or person connected to such a director – see subsection (2)(b)(i) and (ii) ), then the protection afforded by that section will not apply. Instead, the transaction will be voidable at the instance of the company.

128.Irrespective of whether the transaction is avoided, the “insider” and any director who authorised the transaction is liable to account to the company for any gain he has made as a result of the transaction and to indemnify the company for any loss or damage that the company has incurred (see subsection (3) ). However, where the “insider” is not a director of the company, it may be possible for him to avoid liability if he can show that at the time he entered into the transaction with the company he was unaware that the directors were exceeding their powers (see subsection (5) ).

129.As now, under subsection (4) , a transaction will cease to be voidable in certain circumstances, for example, if restitution is no longer possible.

All the explanatory notes for the Act

Amendments and notes

1 notes from legislation.gov.uk

Modifications

  1. C77S. 41 applied (with modifications) (1.10.2009) by The Unregistered Companies Regulations 2009 (S.I. 2009/2436), regs. 3-5, Sch. 1 para. 3(b) (with transitional provisions and savings in regs. 7, 9, Sch. 2)