The Restrictions on Loans from a Company to a Director or Connected Person
S. 239 of the Companies Act 2014 governs the prohibition on loans from Irish companies to directors and connected persons.
This Section sets out that a company shall not;-
- Make a loan or a quasi-loan to a director of the company or its holding company or to a person connected with such a director;
- Enter into a credit transaction as a creditor for such a director or a person so connected;
- Enter into a guarantee or provide any security in connection with a loan, quasi loan or credit transaction made by any other person for such a director or person so connected.
Companies are also prohibited from arranging for other persons to take part in such transactions in particular where there would be a breach of S.239 if the company had entered into the transaction.
A quasi loan from a company to a director or connected person could easily occur. An example would be a company paying a directors credit card bill, with the understanding that the director will repay the company at a later date.
A credit transaction could arise if a company leased property to its director or connected person.
There are ways to “bless the transaction” so that it does not fall foul of S.239. The Summary Approval Procedure can be used to validate such a prohibited transaction.
- For this procedure to be effective a Special Resolution must be passed not more than 12 months prior to the commencement of the activity. This will then have to be filed in the CRO within 15 days of passing.
- A Declaration of Solvency made by the directors of the company setting out that the company will be able to meet its debts as they fall due for 12 months will also need to be prepared. This will then have to be filed in the CRO within 21 days of the activity.
There are a number of exemptions to S.239 and one should carefully consider any activities that might be contrary to the section.
For further information on the above please contact Thomas Norris at email@example.com or on 051 877029.