Procedure plan considerations

Question 1

What section states that an ordinary resolution is required to approve a loan to a director?

Answer 1

S197

Question 2

What documentation must be attached to the notice of the resolution? For how long must the documentation be displayed?

Answer 2

Terms of loan agreement must be displayed for 15 days, stating:

• Nature
• Amount of loan
• Purpose required for
• Extent of company’s liability

Question 3

What transactions require member approval? Define these transactions.

Answer 3

• Loans - straightforward lending of money (and guarantees and security)
• Quasi loans - an agreement to pay/reimburse an account on the understanding it would later be repaid
• Credit transactions - Where one party provides a service/goods for another party on a credit basis which will be paid for at a later date

Question 4

What exceptions to loans to directors are there?

Answer 4

o Expenditure on company business – S204 CA 2006
 No approval required for expense account of less than 50,000
o Expenditure on defending proceedings –s205 CA 2006
 No approval required for defending proceedings for negligence, default, breach of duty or breach of trust in relation to the company or an associated company
o Minor business transactions S207 CA 2006
 Loans or quasi loans of less than £10,000
 Less than 15,000 for credit transactions
o Loans/quasi loans by a money-lending company S209 CA 2006
 If loans is main form of business than provided the loan is provided on the same terms the company can lend to a directorl

Question 5

What are the sanctions for non-compliance?

Answer 5

S213 transaction is voidable by the company unless;
 Restitution is no longer possible
 Company has been indemnified for the loss or damage resulting from the transaction
 Bona fide rights have been acquired by a third party who was not a party to the transaction

Question 6

Can a transaction be ratified?

Answer 6

S214 - yes

Question 7

What defences are there to loans to directors?

Answer 7

Connected persons are not liable if:

• 213((6) - If transaction entered into with a person connected with and director took all reasonable steps to comply then director is not liable
• 213(7) – defence for any connected person and any director who authorised the transaction who can show they had no knowledge of the contravention
• Wholly owned subsidiaries do not require authorisation from the members of the wholly owned subsidiary