The Companies Act 2014 was enacted on the 23rd December 2014 and most provisions of the Act commenced on the 1st June 2015. The Act introduced detailed provisions which significantly impact on how Companies operate. In this article we will detail specifically with the new provision that impacts on Loans by Directors or Connected Persons to Companies or Holding Companies.
If you are a Director of a Company it is important to be aware of Section 237 of the Companies Act 2014 which contains a new provision relating to Loans from a Director or Connected Person to a Company or Holding Company.
If a Loan is made by a Director or Connected Person to a Company or a Holding Company and is not in writing it shall be presumed that that the Loan is not a Loan but a gift. If it is found there is a Loan, but same is ambiguous with regards the extent of the Loan there is a presumption that no interest is payable. If there is ambiguity with regards whether the loan is secured there is a presumption that the Loan is unsecured. If there is ambiguity with regards priority there is a presumption that the Loan is subordinate to all other debts of the company.
Accordingly, it is essential that all Directors are familiar with this Section and are aware of the implications of same. It is imperative that all Loans are correctly documented and legal advice obtained in order that a concise Legal Agreement is entered into between the parties clearly setting out the terms of the Loan.
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