Company Law Enforcement Act, 2001

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Repeal and substitution of section 34 of Act of 1990 — Exceptions to section 31 in certain circumstances.

78.—Section 34 of the Act of 1990 is repealed and the following substituted:

“34.—(1) Section 31 does not prohibit a company from entering into a guarantee or providing any security in connection with a loan, quasi-loan or credit transaction made by any other person for a director of the company or of its holding company, or for a person connected with such a director, if—

(a) the entering into the guarantee is, or the provision of the security is given, under the authority of a special resolution of the company passed not more than 12 months previously; and

(b) the company has forwarded with each notice of the meeting at which the special resolution is to be considered or, if the procedure detailed in subsection (6) is followed, the company has appended to the resolution, a copy of a statutory declaration which complies with subsections (2) and (3) and also delivers, within 21 days after the date on which the guarantee was entered into or the date on which the security was provided, as the case may be, a copy of the declaration to the registrar of companies for registration.

(2) The statutory declaration shall be made at a meeting of the directors held not earlier than 24 days before the meeting referred to in subsection (1)(b) or, if the special resolution is passed in accordance with subsection (6), not earlier than 24 days before the signing of the special resolution, and shall be made by the directors or, in the case of a company having more than 2 directors, by a majority of the directors.

(3) The statutory declaration shall state—

(a) the circumstances in which the guarantee is to be entered into or the security is to be provided;

(b) the nature of the guarantee or security;

(c) the person or persons to or for whom the loan, quasi-loan or credit transaction (in connection with which the guarantee is to be entered into or the security is to be provided) is to be made;

(d) the purpose for which the company is entering into the guarantee or is providing the security;

(e) the benefit which will accrue to the company directly or indirectly from entering into the guarantee or providing the security; and

(f) that the declarants have made a full inquiry into the affairs of the company and that, having done so, they have formed the opinion that the company, having entered into the guarantee or provided the security, will be able to pay its debts in full as they become due.

(4) A statutory declaration under subsection (3) has no effect for the purposes of this Act unless it is accompanied by a report—

(a) drawn up in the prescribed form, by an independent person who is qualified at the time of the report to be appointed, or to continue to be, the auditor of the company; and

(b) which shall state whether, in the opinion of the independent person, the statutory declaration is reasonable.

(5) Where a director of a company makes the statutory declaration without having reasonable grounds for the opinion that the company having entered into the guarantee or provided the security will be able to pay its debts in full as they become due—

(a) the court, on the application of a liquidator, creditor, member or contributory of the company, may declare that the director shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company; and

(b) if the company is wound up within 12 months after the making of the statutory declaration and its debts are not paid or provided for in full within 12 months after the commencement of the winding-up, it shall be presumed, until the contrary is shown, that the director did not have reasonable grounds for his opinion.

(6) The special resolution referred to in subsection (1)(a) may be passed in accordance with section 141(8) of the Principal Act.

(7) Unless all of the members of the company entitled to vote at general meetings of the company vote in favour of the special resolution, the company shall not enter into the guarantee or provide the security before the expiry of 30 days after the special resolution has been passed or, if an application referred to in subsection (8) is made, until the application has been disposed of by the court.

(8) If application is made to the court in accordance with this section for the cancellation of the special resolution, the special resolution shall not have effect except to the extent to which it is confirmed by the court.

(9) Subject to subsection (10), an application referred to in subsection (8) may be made by the holders of not less in the aggregate than 10 per cent in nominal value of the company's issued share capital or any class thereof.

(10) An application shall not be made under subsection (8) by a person who has consented to, signed or voted in favour of the special resolution.

(11) An application referred to in subsection (8) must be made within 28 days after the date on which the special resolution was passed and may be made on behalf of the persons entitled to make the application by such one or more of their number as they may appoint in writing for the purpose.”.