Director Loans


Director loans are commonplace in SME companies, and more usually refer to the loans extended to a company to carry out its endeavours. The director loans to which this article relates and to which the cited legislation applies, are loans drawn down from the company, that is outside of the salaried payments which are processed through payroll and taxation.

The raison d’etre for the legislation in respect of director loans is to ensure that company funds are protected against the particular interests of a respective director or connected party, and to guard against these private or related interests usurping that of the company entity.


Background legislation

The general rule, under the Companies Act 2014 (as laid out in Section 239), is that a company shall not make any loans or quasi-loans to a director or a connected person


A connected person as referred is a spouse, parent, child, brother, sister plus other defined relationships.


An exemption to the rule is in the following particular circumstances ( as per Sections 240 and 242-245):

  1. The value of the arrangement is less than 10% of the company’s net assets.
  2. A Summary Approval Procedure (SAP) is carried out with regard to the prohibited arrangement. 
  3. The arrangement is with a member of the same group of companies. 
  4. The arrangement is a reimbursement of the director’s expenses.
  5. The company enters into the transaction in the ordinary course of business and the value of the transaction is not greater nor the terms better than that which the company would offer ordinarily.

Tax Implications

  • The tax implications for the company in these instances, is that the company will be obliged to pay over a grossed up charge to the Revenue Commissioners in its Corporation Tax (CT) Return. As per Tax Consolidation Act, 1997 (Section 438, 438A and 439), the loan is in effect subject to a 25% gross up charge, payable to the Revenue Commissioners. This charge is however refundable in the next CT Return when the respective Director Loan is repaid, by the director to the company.
  • There is Benefit in Kind (BIK) payable the recipient director in relation the loan, as per Section 122 of the Tax Consolidation Act, 1997.. The BIK amount is calculated per the Department of Finance at specified rates (currently at 13.5% or 4% for qualifying home loans). The respective BIK is to be applied through the company payroll.


Auditor Reporting Duties and Implications for Directors


  • A director loan or connected party loan which exceeds 10% of the Net Assets of a company is a Category 2 indictable offence under the Companies Act.


For an incumbent auditor, there is a duty to report breaches to the Corporate Enforcement Authority (this breach applies to both Director loans and connected party loans to include intercompany loans regarding ‘close companies’ as defined).


Steps to take for the Directors


  • Repay the loan within 6 months of year end. The relevant legislation will not apply to circumstances where the company and director put the affairs in order within 6 months of the financial year end.
  •  Reduce a director loan to below 10% of the Net assets. This will obviate the requirement for a statutory auditor to report on the director conduct and the category two offence. This reduction in the net assets ratio, may be effected by addressing the director loan itself, or perhaps by looking at the Balance Sheet Net Assets calculations (and possible revaluations). Note: a breach of the 10% Net Assets rule is reportable if there is a breach at any time before matters are rectified.
  • If the company has sufficient funds, the Board can look at the option of authorising a bonus director salary to in effect clear a ‘debit director loan balance’ and rectify matters.
  •  For connected company loans, consider the use of a ‘golden share’ to convert the company entities into a group to avoid the prohibition on intercompany loans.
  • Summary Approval Procedure – directors can enable debit director loan balances through this restricted procedure or mechanism which validates otherwise prohibited actions. Care must be afforded in respect of this option to ensure the mechanism is in place to pre-date a loan being drawn down. Furthermore, the use of a SAP procedure to allow for a director loan will remove limited liability and the director can as a result be held personally liable for the company debts.

This summary article has referenced the various aspects of Director Loans in company law and taxation law, the respective implications and risks for directors and their advisors to consider, and the best options available to mitigate those risks.


This article is of a general nature in relation to Director Loans and attendant matters For professional advice call our team at McCarthy Walsh are available on our confidential line 01 444 5260 for queries and advice.


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