163. Approval of company required for loans and quasi-loans to, and credit transactions for benefit of, persons connected with directors of lending company, etc.

Question 1

163. Approval of company required for loans and quasi-loans to, and credit transactions for benefit of, persons connected with directors of lending company, etc.

Answer 1

General overview
[163.01] Section 163 is a statutory provision that reflects an aspect of a breach of fiduciary duty by directors of a company. It is also to prevent the circumvention of s 162 by directors making loans, etc. to a company that they own or control. The section prohibits, save in the case of an exempt private company, a company (“lending company”) from making a loan, quasi-loan, credit transaction, or the giving of any guarantee or security in connection with a loan, quasi-loan or credit transaction to a company or a limited liability partnership (“borrowing company/firm”) of which a director or directors of the lending company are interested in 20% or more of the total voting power of the borrowing company/firm unless the transaction has the prior approval of the lending company’s members at general meeting. Obviously, the conflicted director and his family members are required to abstain from voting at the general meeting. In this regard, Act No 36 of 2014 has broadened the scope of proscribed transactions to include quasi-loans and credit transactions to bring it in line with s 162.