When a company is carrying out a transaction involving a bank and a director, the bank may require a Summary Approval Procedure (“SAP”) to be completed.
However, a SAP may not be required if the transaction does not fall under any of the criteria provided for in Section 239 of the Companies Act 2014.
To help understand what some of the criteria are, we have set out below some questions to consider to determine if a SAP may be required.
- Is it a loan, guarantee or provision of security?
- Sec 239 provides that a company may not make a loan or a quasi-loan, enter into a credit transaction as creditor, enter into a guarantee or provide any security in connection with a loan, quasi-loan or credit transaction made by any other person to a director of the company or of its holding company or to a person connected with such a director.
- If the transaction is not one of the above the Sec 239 may not apply to the transaction
- If it is one of the above then, is the transaction with a director of the company or a connected person (which may include another company)?
- Sec 220 defines what a connected person is which includes that director’s spouse, civil partner, parent, brother, sister or child
- A body corporate shall also be considered a connected person if the body corporate is connected with a director of a company if it is controlled by that director or by another body corporate that is controlled by that director
- a director of a company controls a body corporate if, but only if, he or she is, alone or together with any other director or directors of the company or any person connected with the
- director or such other director or directors—
- (a) interested in one-half or more of the equity share capital of that body;
- or
- (b) entitled to exercise or control the exercise of one-half or more of the
- voting power at any general meeting of that body.
- Do any of the exemptions apply to the transaction?
- Sec 239 does not prohibit a company entering into an arrangement if the value of the arrangement or in the case of there being other arrangements entered into by the company, the total amount outstanding under the arrangements is together less than 10 per cent of the company’s relevant assets
- Sec 239 does not prohibit a company from making a loan, quasi-loan, entering into a credit transaction, guarantee or providing security to any body corporate which is its holding company, subsidiary company or subsidiary of its holding company.
- Vouched director expenditure properly incurred for the purposes of the company or enabling him or her to properly perform his or her duties.
- Business transactions where lending is part of the ordinary course of business.
If the answer is yes to the above criteria, then a SAP may have to be completed. However, it they don’t then the directors need to engage with the bank to determine are there other circumstances requiring the SAP. The bank may still insist in the SAP to be completed, and the directors may wish to complete a SAP to allow the transaction to happen but it is important that the directors are aware of the risks when completing a SAP.
Personal Liability of Directors
Directors must ensure that they have reasonable grounds for making the Declaration of Solvency and that the company can pay its debts in the next 12 months.
Where a Declaration of Solvency has been made without reasonable grounds for doing so, it is open to the High Court to declare that each director who made the Declaration of Solvency is personally liable without limitation for all the debts and liabilities of that company.
So the directors who make the declaration are taking on significant risk and should be satisfied that the company is financially secure before entering into the transaction.
For more information on Section 239 Directors Loans see the following articles:-
- Proceed with Caution Before Taking a Loan from a Company https://clscharteredsecretaries.ie/proceed-with-caution-before-taking-a-loan-from-a-company/
- Creating a group using a golden share or traditional group https://clscharteredsecretaries.ie/golden-share-or-traditional-groups/
- Approving directors’ loans https://clscharteredsecretaries.ie/approving-directors-loans/
NB: The content of this article is provided for information purposes only and does not constitute legal or other advice.
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