Loans and Similar Transactions Involving Directors

• Loans and similar transactions involving Directors
• The general prohibition on loans and similar transactions

Company directors occupy a special position with all companies of which they are directors. Without regulation directors could potentially enter into transactions with their companies which would result in them placing their interests before those of the company, its shareholders and/or its creditors.

In addition to the giving of loans, the general prohibition also extends to:

• Companies making quasi-loans to directors or persons connected with directors
• Companies entering into credit transactions as a creditor for directors or persons connected with directors

There was, however, an obligation to disclose details of any such loans in the company’s financial statements.

The general prohibition set out in section 31 also applies to shadow directors. A shadow director is defined by section 27 of the Companies Act, 1990 as a person in accordance with whose directions or instructions the directors of the company are accustomed to act. For the purposes of transactions with directors, a shadow director is treated as though they are a director of the company, unless the directors are acting on advice given by that person in a professional capacity.

The term credit transaction is defined in section 25(3) of the Companies Act, 1990 as being a transaction under which the creditor:

• Supplies any goods or sells any land under a hire-purchase or conditional sale agreement
• Leases or licenses the use of any land or hires goods in return for periodical payments
• Otherwise disposes of land or supplies goods or services on the understanding that payment whether in a lump-sum or installments or by way of periodical payments or otherwise is to be deferred