Loans and Similar Transactions Involving Directors - Prohibition

General Prohibition

Section 31 of the Companies Act 1990 introduced a general prohibition whereby companies are prohibited from granting loans to directors and from entering into certain other transactions with directors or persons connected to directors.

The 1990 Companies Act also contains a number of exceptions to the general prohibition whereby certain transactions can legally be entered into provided that certain criteria are satisfied.

The exceptions

The exceptions to the general prohibition, are:

• Arrangements within 10% of relevant assets
• Arrangements approved by a special resolution and accompanied by a statutory declaration
• Arrangements between group companies
• Directors’ expenses
• Business transactions

The various exceptions do not all apply to the same categories of transactions, some exceptions do not apply to guarantees or the provision of security whereas other exceptions do not apply to loans, quasi-loans and credit transactions.