Loans to directors, connected persons and related arrangements—requirement to obtain members’ approval
Loans to directors, connected persons and related arrangements—requirement to obtain members’ approval

The following Corporate guidance note provides comprehensive and up to date legal information covering:

  • Loans to directors, connected persons and related arrangements—requirement to obtain members’ approval
  • Approval of a loan to a director or connected person and related arrangements
  • Exceptions to the requirement to obtain members’ approval
  • Statutory consequences of a failure to obtain members’ approval of a loan to a director, connected person or related arrangement
  • Loans from a director to a company

The Companies Act 2006 (CA 2006) contains provisions that require loans from a company to its directors or persons connected with its directors and related arrangements to be approved by the members of the company.

Approval is required for such transactions as they involve directors (or their connected persons) and are considered to be particularly open to abuse. The relationship between the statutory provisions requiring approval of such a transaction and the general duties of a director that are set out in statute is discussed in Practice Note: Directors' duties—scope, nature, interpretation and application.

One of the general duties of a director set out in statute is the duty of a director to declare if he is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company of which he is a director and the nature and extent of that interest to the other directors.

In relation to:

  1. a director’s obligation to declare an interest in a transaction or arrangement with the company of which he is a director, see Practice Note: Declaration of a director's interests—the statutory provisions, and

  2. a director’s ability to participate, either as a director or a member, in decisions when such a transaction or arrangement is the matter in hand, see Practice Note: Declaration of a director's interests—articles of association

The term ‘director’ for