BL - Directors - loans Flashcards
What loans to directors of a private company not associated with a public company have special measures?
- Loans to director 💳
- Guarantees or security for a loan to director 💪
Note: does not apply to connected persons
What are the conditions for a PLC or a private company associated with a PLC to make a loan to its director?
Must be first approved by the shareholders by ordinary resolution
What are the conditions for a private company not associated with a public company to make a loan to its director?
Must be first approved by the shareholders by ordinary resolution.
What are the loans covered by legislation to its director of a PLC or of a private company associated with a public company?
- Loans to director 💳
- Guarantees or security for a loan 💪
. - quasi loans - Company paying a 3rd party with the director paying the company back 🔁
- Providing goods and services to a director for credit 📦👷♂️
👯
Note: all the above also apply to persons connected to the director.
What types of loan are exceptions to the legislation on making loans to a director?
- Expenditure on company business (up to a maximum of £50,000);
- Loans for defending proceedings brought against a director;
- Loans for defending regulatory actions or investigations;
- Minor and business transactions
- loans or quasi-loans of up to £10,000
- credit transactions up to £15,000 - Intra group transactions, and
- Money lending companies (where the loan is made in the ordinary course of the business of the company).
What happens if loans are made to a director without shareholder approval and the shareholders do not want to affirm the transaction?
the transaction is voidable 🗑️unless:
(a) restitution is no longer possible,❌
(b) the company has been indemnified for the loss or damage suffered by it, 💰or
(c) rights acquired in good faith by a third party would be affected by the avoidance.😇
If so, the directors involved (and those so connected) are liable to account to the company for any profits made and to indemnify the company for any loss incurred.🤑😭
What are the defences to unapproved loans to directors and their associates?
- If the loan is to a person connected with a director, that director will not be liable if they took all reasonable steps to ensure the company complied with the sections. 👣
- If any connected person (if relevant) or any director that had no knowledge of the circumstances constituting the contravention🧠
What happens if loans are made to a director without shareholder approval and the shareholders agree to the loans?
- can be affirmed by the shareholders of the company and the holding company (where relevant) by ordinary resolution within a reasonable period.
If it is affirmed, the arrangement may no longer be avoided.
What happens if the loan transaction is between a company and a director of the company’s holding company or a person connected to a director of the holding company
The holding company will also need to approve the transaction by OR
What happens if the loan transaction is between a wholly owned subsidiary company?
Approval is not required by the members of any company which is a wholly-owned subsidiary of another company
Does a director need to disclose any such loans?
Yes - a director would need to disclose the nature and extent of their interest to the board if they were interested in any of the transactions caught
What is the procedure for agreeing a loan to a director?
Where the ordinary resolution is to be passed at a General Meeting, a memorandum setting out the proposed transaction must be made available for inspection by members of the company both:
a) at the company’s registered office for not less than 14 days ending with the date of the meeting; and
b) at the meeting itself.
A minimum of 15 days notice of the general meeting held to approve the transaction will therefore have to be given to shareholders (even if the short notice procedure is followed) unless the written resolution procedure is used.
Where the written resolution procedure is being followed, a memorandum setting out the proposed transaction must be sent or submitted to every eligible member at or before the time at which the proposed resolution is sent or submitted to the member.
