Approval of the general meeting for a transaction in conflict of interest does not cure a flaw in the board of directors’ approval

A company dealing with cannabis growing required an infusion of funds and the board of directors accepted by majority of two against one an investment offer made by one of the directors, which included a change in control over the company and the cancellation of veto rights of the investors. The director who objected was the director on behalf of the investors, who under the articles of association had a veto right. Despite this, the investment was approved at the general meeting.
The Court issued an order preventing the investment from being made. An "irregular transaction" of a company in which a director has a personal interest is required to be approved by the board of directors and the general meeting of the company. An “irregular transaction” is one that is not in the ordinary course of action of the company, is not under market terms or may materially influence the profitability of the company, its assets or its liabilities. Here the offer could have a material effect on the profitability of the company, because without the investment the company will collapse and therefore it is an irregular transaction. The director had a personal interest in the transaction beyond his shareholding as a shareholder because the transaction was intended to preserve his control over the company and to eliminate the investor's right of veto and therefore he was not allowed to vote at the board of directors. Because the director voted despite the conflict of interest and in any case, the investor’s director exercised the veto right, the board of directors resolution is invalid and the approval of the general meeting is not sufficient to cure the defect that fell with the approval of the board.