Directors Loans and intra-group loans invalid from 1 May 2011

Did you know that all of your related and inter-related Company and Close Corporation loans granted from 1 May 2011 are invalid?

Furthermore did you know that all of your Directors’ loans granted from 1 May 2011 are invalid?

In terms of Section 45 of the Companies Act, 2008 all intra-group loans, guarantees and other financial assistance require approval of the shareholders through a special resolution.

Section 45 stipulates that the Board of Directors may not authorise a Company to provide direct or indirect financial assistance to the following:

1. A Director or Prescribed Officer of the Company or a Director or Prescribed Officer of a related or inter-related Company;
2. A related or inter-related Company or Corporation;
3. A member of a related or inter-related Corporation;
4. A person related to such Company, Corporation, Director, Prescribed Officer or Member;

Most notably before granting any such financial assistance, the Board of Directors must ensure the following:

1. That the Company would satisfy the solvency and liquidity test; and
2. That the terms under which the financial assistance is proposed to be given are fair and reasonable to the Company;

If the provisions of Section 45 are not complied with, the financial assistance would then become void and the Directors would be at risk of being held personally liable.

Please contact Karen Venter for further information and assistance in drafting of these highly important special resolutions.