Section 45 Companies Act – Financial Assistance

Section 45 is not a new section of the Companies Act. However, CIPC now requires you to note your compliance with this section as part of the new CIPC Compliance Checklist. It is a punitive section and can result in personal liability for the directors of a company or the members of a Close Corporation.

The directors may authorise the company to provide direct or indirect financial assistance to a director, prescribed officer of the company or of a related or inter-related company, or to a related or inter-related company or corporation, or to a person related to any such company, corporation, director, prescribed officer or member, unless the company’s MOI provides otherwise.

Financial Assistance includes lending of money, guaranteeing of a loan or other obligation and securing any debt or obligation.

The Directors may not authorise any financial assistance unless:

1. The provision for financial assistance is pursuant to:

• an employee share scheme that satisfies the requirement of Section 97; or
• a special resolution of shareholders, adopted within the previous two years, which approved such assistance (either for a specific recipient or a specific category of recipients).

2. The Directors are satisfied that immediately after providing financial assistance the company would satisfy the solvency and liquidity test. Solvency relates to the assets of the company, fairly valued, being equal to or exceeding the liabilities of the company. Liquidity relates to the company being able to pay its debts as they become due in the ordinary course of business for a period of 12 months.

Despite the shareholders adopting a special resolution within the previous two years, the Directors are still required to adopt a resolution authorising the financial assistance and confirm that the company will satisfy the solvency and liquidity test.  The Directors must then provide written notice of that resolution to all shareholders (unless every shareholder is also a director) and to any trade union representing its employees (if applicable) –

1. within 10 business days after the directors adopt the resolution, if the total value of that financial assistance together with any other financial assistance provided during that financial year, exceeds 0.1% of the company’s net worth at the time of the resolution; or
2. within 30 business days after the end of the financial year, in any other case.

Should the above steps not be followed (Shareholders Special Resolution, Directors resolution and notice of such resolution to Shareholders and any trade union), such resolution or agreement to provide financial assistance is void and the director(s) would be liable for any loss if the director(s):

1. were present at the meeting when the directors approved the resolution/agreement, or participated in the making of such a decision; and
2. failed to vote against the resolution/agreement.

We highly recommend that all shareholders adopt a special resolution every two years to allow the directors the flexibility to manage the affairs of the company without facing the risk of personal liability. The directors will need to ensure that the company meets the solvency and liquidity requirements after every transaction to avoid personal liability.

Please contact Stephanie Phillips at our offices should you have any queries.