BLP (13)
Terms
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- What is the six step approach to follow when answer questions on loans to directors?
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1. Decide the nature of the company entering the transaction?
2. What is the nature of the transaction?
3. Is shareholder approval needed?
4. Any statutory exemptions
5. Sanctions for Breach
6. Directors’ Duties - Why is it important to distinguish between companies in general and plcs or companies associated to a plc
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Plcs and associated cos are subject to much wider restrictions in this area
- What section of the Companies Act defines associated companies?
- s. 256
- When answering questions on loans and other financial transactions with directors, what is to check first?
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The nature of the company that is entering into the transaction. A private limited company, it could still be associated to a plc!
- What is a quasi-loan?
- The director owes a third party ££ and the company agrees to repay the third party on behalf of the director on the understanding the director will repay the company at a later
- What is a credit transactions?
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Between the company and director. The company supplies goods/services to the director on the understanding the director will pay the company at a later date.
- What is a guarantee?
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A promise to pay if the borrower defaults.
Security provides the lender with rights over the company’s assets (e.g. right of sale if the borrower defaults)
- What section of the Companies Act deals with loans to directors?
- s. 197
- To which companies does s. 197 CA apply?
- All companies
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Is Shareholder approval prima facie needed for each of these transactions?
1. Loan to Director of company
2. Loan to Director of holding co
3. Guarantee/security for loan to dir of co/dir of holdco - Yes shareholder approval is prima facie needed for each of these transactions.
- What kind of shareholder approval is required under the provisions of s. 197?
- OR
- What must you think about in relation to shareholder approval?
- Which company must obtain shareholder approval
- What must you consider in order to determine which company must obtain shareholder approval?
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1. Is the holding company “involved†in the transaction? - Yes, Hold Co members approval required.
2. Is the company that prima facie needs shareholder approval a wholly-owned subsidiary? Yes - parent shareholder approval required. - Where can the statutory exceptions be found in the CA in relation to loans to directors?
- Ss. 204-209
- Give an example of a kind of exemption that might apply.
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A loan to a director and the amount of the loan is £10,000 or less no shareholder approval is needed (s. 207(1)).
- Where can you find the sanctions for breach of the laws related to loans to directors in the CA?
- Ss. 213 and 214
- What two factors should you consider in relation to breaches related to loans to directors?
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1. The effect on the transaction; and
2. The liability of the individuals - What must you always remember once you conclude an answer related to loans to directors?
- Directors duties. Directors must always bear in mind their statutory duties
- Where shareholder approval is needed under ss. 197, 198, 200 or 201, what needs to be prepared?
- A memorandum setting out certain information about the transaction.
- What needs to happen in relation to the memorandum?
- Must be available for at least 15 days ending with the date of the GM (s. 197(3)(b)).
- What must be done if the ordinary resolution is to be passed as a written resolution?
- a copy of the memorandum must be attached to and sent out with the written resolution (s. 197(3)(a)).
- What sections of the Companies Act only apply when a private company is associated with a plc?
- ss. 198; 200; or 201
- What will happen if shareholder approval for the loan is not obtained?
- The transaction will be voidable by the company (s. 213(2)), unless one of the exceptions in s. 213(2)(a)-(c) applies (e.g. bona fide third party rights have been acquired).
- Can a voidable transaction by cured?
- The voidability of the transaction can be “cured†if the shareholders affirm the transaction within a reasonable time (s. 214)
- What section of the Companies Act sets out the civil consequences for contravention of the provisions related to loans, etc?
- S. 213 CA 06