Chapter: 32  COMPANIES ORDINANCE

Section Num: 157I  Version Date 13/02/2004

Civil consequences of transactions contravening section 157H

(1) A person who receives from a company a sum paid in pursuance of a transaction or arrangement entered into in contravention of section 157H shall be liable to repay that sum to the company forthwith, except where he is not a director of the company or of its holding company and he shows that, at the time the transaction or arrangement was entered into, he did not know the relevant circumstances.  (Replaced 28 of 2003 s. 63)

(2) Subject to subsection (3), a guarantee entered into or any security provided by a company in contravention of section 157H shall be unenforceable against the company.  (Amended 28 of 2003 s. 63)

(3) Subsection (2)-

(a) shall not apply to a guarantee entered into or any security provided by the company in connection with a loan or quasi-loan made by any person to, or a credit transaction entered into by any person as creditor for, a person who is not a director of the company or of its holding company if it is shown that, at the time the guarantee was entered into or the security provided, the person to whom the guarantee was given or the security provided, as the case may be, did not know the relevant circumstances; and

(b) shall not affect an interest in any property that has been passed by the company to any person by way of security provided in connection with any transaction or arrangement.  (Replaced 28 of 2003 s. 63)

(4) Without prejudice to any liability imposed on directors of companies otherwise than by this subsection, a director of a company that has entered into a transaction or arrangement in contravention of section 157H shall be liable-

(a) to account to the company for any gain that he has made directly or indirectly by the transaction or arrangement; and

(b) jointly and severally with any other director liable under this subsection, to indemnify the company for any loss or damage resulting from that transaction or arrangement,

if-

(i) he knowingly and wilfully authorized or permitted the transaction or arrangement to be entered into;

(ii) the transaction or arrangement consists of the making of a loan or quasi-loan to, or the entering into of a credit transaction as creditor for, that director or a person connected with him; or

(iii) the transaction or arrangement consists in the giving of any guarantee or the provision of any security in connection with a loan or quasi-loan made by any person to, or a credit transaction entered into by any person as creditor for, that director or a person connected with him.  (Replaced 28 of 2003 s. 63)

(5) Without prejudice to subsections (1) to (4), section 157H shall not of itself invalidate any transaction or arrangement entered into in contravention of that section.  (Replaced 28 of 2003 s. 63)

(6) In this section-

"company" has the same meaning as in section 157H(10);

"director" , except in subsection (3), includes a shadow director;

"the relevant circumstances", in relation to a contravention of section 157H, means all the facts and other circumstances constituting that contravention including, in the case of a transaction or arrangement which but for any fact or circumstance would be authorized by any provision of section 157HA, that fact or circumstance.  (Replaced 28 of 2003 s. 63)

(7) For the purposes of this section a person is connected with a director of a company if, but only if, he is-

(a) the spouse, child or step-child of that director; or

(b) a person acting in his capacity as the trustee (other than as trustee under an employees' share scheme or a  pension scheme) of any trust the beneficiaries of which include to director, his spouse or any of his children or step-children or the terms of which confer a power on the trustees the may be exercised for the benefit of the director, his spouse or any of his children or step-children; or

(c) a person acting in his capacity as partner of that director or of any person who by virtue of paragraph (a) or (b) is connected with that director; or

(d) a company in which that director or his spouse or any of his children or step-children, or any person to whom paragraph (b) or (c) applies, holds (jointly or severally or directly or indirectly) a controlling interest, and in this subsection a reference to the child or step-child of any person shall include a reference to any illegitimate child of that person, but shall not include a reference to any person who has attained the age of 18 years.  (Amended 32 of 1990 s. 13)

(Added 6 of 1984 s. 114)

[cf. 1980 c. 22 s. 52 U.K.]