Directors - Loans and Related Transaction Flashcards
(21 cards)
What are the 4 types of transactions regulated under s197-214 CA?
- Loans (s197)
- Quasi-loans (s199)
- Credit transactions (s202)
- Guarantees or provision of security for any of the above
What companies are subject to the Loan restrictions?
All, whether private or public
What companies are subject to s198-202 restrictions?
- Public companies
- Private companies associated with a Plc, ie. subsidiaries or co-subsidiaries
What does s197 prohibit without shareholder approval?
- Loans to directors of the company or its holding company
- Guarantees or security in connection with such loans
What type of shareholder approval is required under 197 Loans?
an ordinary resolution passed before entering the transaction
Example of transaction under s197?
- A company lends a director £50k
- A company provides a guarantee to a bank for a loan made to a director
What is a quasi-loan?
A transaction where the company pays a third party on behalf of the director, with an understanding that the director will repay the company. eg company pays for home renovations for a director, with the director reimbursing later.
What is a credit transaction?
Where a company provides goods or services to a director on credit, to be paid for later or in instalments - eg. a construction company builds an extension for a director and allows them to pay in instalments
Which transactions with connected persons require approval?
- Loans
- Quasi-loans and credit transactions
- Guarantees/security in respect of any of the above
What are the key exceptions where approval is not required?
- Expenditure on company business < £50k
- Loans to defend legal or regulatory proceedings
- Minor transactions - loans/quasi-loans /<£10k, credit /<£15k
- Intra-group transactions
- Money-lending companies acting in the ordinary course of business
What happens if a transaction is entered into without shareholder approval?
Transaction is voidable by the company unless:
a) restitution is no longer possible
b) the company is indemnified
c) good faith 3rd party rights would be affected
What liability would directors face if a transaction is entered into without shareholder approval?
- Must account for profits made
- Must indemnify the company for losses
Can the transaction be affirmed after the fact?
Yes - it can be affirmed by ordinary resolution of the company and holding company (if relevant)
What defence exists?
A director is not liable if they took all reasonable steps to ensure compliance with:
- s200 - loans to connected persons
- s201 - quasi-loans and credit transaction with connected persons
- s203 - guarantees or security for the above
What other defence exists?
A director or connected person is not liable if they had no knowledge of the circumstances that caused the contravention
If a transaction is with a director of the holding company, what must happen?
the holding company’s shareholders must also approve the transaction by ordinary resolution
Do wholly-owned subsidiaries need shareholder approval?
No - under wholly-owned subsidiary exemption, no approval is required
What disclosure is required under section 177 for these transactions?
- A director must declare the nature and extent of their interest to the board, unless the board is already aware
What is the effect of MA14 on director voting?
An interested director cannot vote or count in quorum on a board resolution approving a transaction in which they are interested
What procedural steps must be taken for a GM?
A memorandum setting out the proposed transaction must be:
- Available at the registered office for at least 15 days ending on the GM date
- Available at the general meeting itself
What is required if a written resolution is used instead?
The memorandum must be sent or submitted to all eligible members at or before the time the proposed resolution is circulated
