Transactions with directors - loans

Question 1

explain what requires SH approval and when

Answer 1

The following needs to be approved by the SHs unless an exception applies:
o Loans to D (or D of its holding company) or a connected person; or
o Guarantees/security for a loan of Ds (or D of its holding company) or a connected person

Question 2

what are the exceptions? (6)

Answer 2

o The company is not registered in the UK
o The company is a wholly owned subsidiary
o The loan is to help D perform their duties (capped at £50k)
o The loan is for defending court action/regulatory proceedings related to their duties
o Loan is less than £10k
o The loan etc is to an associated company i.e. subsidiary, holding company

Question 5

what is the effect of the board doesn’t obtain approval?

Answer 5

transaction is voidable & the company can choose to rescind the contract (undo), unless:
o Rescission is impossible (i.e. property has been disposed of)
o The company has been indemnified for the loss
o A bona fide purchaser has acquired the property
o SHs have retrospectively approved the transaction by OR

Question 6

explain liability (i.e. who, how and for what) when an unapproved loan takes place

Answer 6

Irrespective of whether the company rescinds, the following are joint + severally liable to account for any gain made / indemnify for any loss the company suffers:
o D + any D who authorised the transaction
o Any connected person