The granting of a loan to a company by its board member

1. In accordance with Article 15(1) of the Commercial Companies Code:

“The conclusion by a capital company of a credit agreement, loan agreement, guarantee or other similar agreement with a member of the management board, supervisory board, audit committee, proxy, liquidator or in favour of any of these persons requires the consent of the shareholders’ meeting or the general meeting, unless the Act provides otherwise.”

Firstly, a meeting of the company’s shareholders should be convened, during which a resolution will be passed granting consent for a member of the management board to enter into a loan agreement with the company. In the absence of such consent, it will not be possible to grant a loan to the company, and any such agreement entered into will be void.

2. Pursuant to Article 230 of the Commercial Companies Code:

“The disposal of rights or the incurring of a liability for a performance whose value exceeds twice the amount of the share capital requires a resolution of the shareholders, unless the articles of association provide otherwise. The provision of Article 17 § 1 shall not apply.”

Secondly, one must compare the amount of the loan to be granted with the amount of the company’s share capital, and if there is a need for the shareholders to adopt an additional resolution, it would be necessary to check whether the articles of association contain a provision exempting the company from this obligation.

3. Pursuant to Article 210 § 1 of the Commercial Companies Code:

“In an agreement between the company and a member of the management board, and in any dispute with such a member, the company shall be represented by the supervisory board or by a proxy appointed by a resolution of the shareholders’ meeting.”

It should be noted that merely obtaining corporate approvals is not sufficient for the validity of a loan agreement. Any agreement concluded by the company with a member of its management board requires a departure from the standard method of representation in favour of the method of representation specified in Article 210 § 1 of the Commercial Companies Code. If a supervisory board has been appointed in the company, a member selected by it shall be authorised to validly conclude the loan agreement. In the absence of a supervisory board, the company’s shareholders’ meeting should appoint a proxy to conclude such a loan agreement.

4. Pursuant to Article 210(2) of the Commercial Companies Code:

“Where the shareholder referred to in Article 173(1) is also the sole member of the management board, the provision of paragraph 1 shall not apply. A legal transaction between that shareholder and the company represented by him or her must be in the form of a notarial deed. The notary shall notify the registry court of each such legal transaction via the ICT system.”

In the situation described above, i.e. where a member of the management board is also the sole shareholder of a limited liability company, the loan agreement must, to be valid, be concluded in the form of a notarial deed; consequently, the application of the specific form of representation set out in Article 210(1) of the Commercial Companies Code will not be legally effective in this case. In order to conclude the loan agreement, the member of the management board will have to visit a notary to make the relevant declarations in his own name and on behalf of the company in the notary’s presence.

In summary, the conclusion of a loan agreement between a limited liability company and a member of its management board entails the need to fulfil a number of conditions; therefore, before carrying out this legal transaction, it is advisable to familiarise oneself with the currently applicable regulations and the company’s articles of association to ensure that such an agreement will be legally effective.