on loans, quasi-loans, etc. to directors and replaces this
with a requirement for approval of the transaction by the
members by ordinary resolution (or written resolution).
First, a description of loans, quasi-loans, and credit.
1 Loans and quasi-loans. Basically, a quasi-loan occurs
when a director incurs personal expenditure but the
company pays the bill. The director pays the company
back later. In a loan the company would put the director
in funds; he would buy, e.g. personal goods, and then
repay the loan.
Examples of quasi-loans are:
■the company buys a yearly railway season ticket for a
director to get to work; he repays the company over
12 months;
■a director uses a company credit card to pay for per-
sonal goods, e.g. a video. The company pays the credit
card company and the director repays his company
over an agreed period;
■the company purchases an airline ticket for a director’s
wife who is accompanying him on a business trip at
the director’s expense. The director repays the com-
pany over an agreed period.
It should be noted that the director’s own expenses
for the trip which would be paid by the company are not
affected. It is only personal and not business transac-
tions which are controlled.
2 Credit. Examples of credit are:
■a furniture company sells furniture to a director on
terms that payment be deferred for 12 months;
■the company services a director’s personal car in its
workshops and the director is given time to pay;
■the company sells a Rolls-Royce to the wife of one of
its directors under a hire-purchase agreement.
Loans, quasi-loans and credit
The position is as follows.
In the case of a private company which is not associated
with a public company (as where the two companies are
part of the same group), the Act requires member approval
for loans and related guarantees or security made by a
company for:
■a director of the company or a director of its holding
company.
In the case of a public company or a private company
associated with a public company, member approval is
required for loans, quasi-loans and credit transactions and
related guarantees or security made by the company for:
■a director of the company;
■a director of its holding company;
■a person connected with a director of the company,
e.g. spouse; or
■a person connected with a director of its holding
company.
Member approval is not required by the above provi-
sions in the following circumstances:
■for loans, quasi-loans and credit transactions to meet
expenditure in the company’s business but total value
of loans, etc. to those in the above list, including
connected parties, must in the aggregate not exceed
£50,000;
■money advanced to a director’s defence costs in legal
proceedings in connection with any alleged negligence,
default, breach of duty or breach of trust in relation to
the company or an associated company;
■small loans and quasi-loans, as long as the total value
of such loans and quasi-loans to a director and con-
nected persons does not exceed £10,000;
■small credit transactions provided the value aggreg-
ated across the director and connected persons does
not exceed £15,000;
■credit transactions made in the ordinary course of the
company’s business, as where a director of a furniture
retail company enters into a credit transaction for the
purchase of a sofa for his or her own home;
■loans and quasi-loans made by a money-lending com-
pany in the ordinary course of its business and the
loan is on commercial not favourable terms.
There is now no criminal penalty for breach of the above
provisions. However, the loans, etc. would be unlawful
and recoverable by the company.Disclosure in accounts
Under s 413, all transactions involving loans, quasi-loans
and credit to directors and their connected persons in all
companies must be disclosed in notes to the company’s
accounts.Material interests
Material interests of directors and their connected per-
sons must also be disclosed in a note to the accounts.
A material interest could be, for example, a contract to
build a new office block which the company had enteredPart 2Business organisations