Many loans to directors illegal

A large number of directors are taking out illegal loans from their companies, according to the Office of the Director of Corporate Enforcement (ODCE).

The issue is one which has been noted following the receipt of reports from auditors. Auditors are now obliged to report suspected breaches of company law to the ODCE.

"Almost 100 reports have been made to my office by company auditors suggesting that there have been unlawful transactions in a recent financial year between companies and their directors, contrary to the provisions of Part 3 of the Companies Act 1990," the director, Mr Paul Appleby, said yesterday.

"A substantial majority of these reports relate to the granting of loans to directors."

Mr Appleby said company law included provisions to prevent directors from abusing their position and from adversely affecting the interests of a company's shareholders or creditors.

The office has published a draft guidance document on the issue. Loans to directors are prohibited if they exceed 10 per cent of the "relevant assets" of the company.