SEC- time to Act on Related Party Transactions

Many directors of PLC’s (public listed company) were up in arms over SEC’s draft rules which were restrictive on RPTs to prevent commission of fraud on innocent individual shareholders. Their duty includes the protection of minority shareholders. How would these so called ‘concerned’ directors react to the following situation:
An Insurance company invests a significant portion of their money (whose strength is due to policyholders monies as well) to buy shares from it’s majority shareholder at a 7% premium(higher than market price). The return they would get is a 40% dividend( on a rs10/- share it will be rs 4/-) as opposed to above 10% on the full amount on treasury bills. So they forego 10% for 2.5% return. They may look forward to capital gains but they have already paid a premium on existing market price, so they’ll have to wait for a long time? Did the insurance company strategy require such a share investment, if the market trends are negative and if the director wanted to get out why did the PLC have to give other people’s money to the director? When the loss is booked at year end who takes responsibility for this non-commercial transaction?

About surenraj

“Views expressed are my own”
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