Terms of Loans

For loans made by the company to directors or connected persons, if the terms are not in writing, the loan is presumed to be repayable on demand with an interest rate of 5% per annum. Conversely, if a director loans money to the company and it’s not documented, it’s presumed to be non-interest bearing, unsecured, and subordinate to other creditors.

Should there be ambiguity in written agreements concerning the repayment terms, interest, or security status, the default position favors the company. For example, undocumented loans by directors to the company are presumed to be gifts or capital contributions rather than loans. Additionally, failure to comply with these requirements may lead to criminal charges, particularly if the director benefits at the expense of the company’s interests.