Companies Act 2014 section 242

Availability of Summary Approval Procedure to permit loans, etc.

Section 242 provides that the general prohibition on loans, quasi-loans, credit transactions, guarantees and security to directors and connected persons can be overridden where the company follows the Summary Approval Procedure.

• Section 239 generally prohibits companies from making loans, quasi-loans, credit transactions, guarantees or security arrangements in favour of directors and connected persons.
• Section 242 creates an exception: these otherwise prohibited transactions are permitted if the company follows the Summary Approval Procedure.
• The Summary Approval Procedure requires a special resolution of the members and a declaration by the directors that the company can meet its debts as they fall due.
• This mechanism allows companies flexibility to enter into such arrangements with directors where the members are informed and give their approval, and the company's solvency is confirmed.