Companies Act 2006, section 197

Loans to directors: requirement of members' approval

Part 10 A company's directors

(1)A company may not—

(a)make a loan to a director of the company or of its holding company, or

(b)give a guarantee or provide security in connection with a loan made by any person to such a director,

unless the transaction has been approved by a resolution of the members of the company.

(2)If the director is a director of the company's holding company, the transaction must also have been approved by a resolution of the members of the holding company.

(3)A resolution approving a transaction to which this section applies must not be passed unless a memorandum setting out the matters mentioned in subsection (4) is made available to members—

(a)in the case of a written resolution, by being sent or submitted to every eligible member at or before the time at which the proposed resolution is sent or submitted to him;

(b)in the case of a resolution at a meeting, by being made available for inspection by members of the company both—

(i)at the company's registered office for not less than 15 days ending with the date of the meeting, and

(ii)at the meeting itself.

(4)The matters to be disclosed are—

(a)the nature of the transaction,

(b)the amount of the loan and the purpose for which it is required, and

(c)the extent of the company's liability under any transaction connected with the loan.

(5)No approval is required under this section on the part of the members of a body corporate that—

(a)is not a UK-registered company, or

(b)is a wholly-owned subsidiary of another body corporate.

Read section 197 in the full Act → Definitions (9) Cases (13)

Definitions used in section 197

company

“company” means a company formed and registered under this Act, that is—

(a)

a company so formed and registered after the commencement of this Part, or

(b)

a company that immediately before the commencement of this Part—

(i)

was formed and registered under the Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)), or

(ii)

was an existing company for the purposes of that Act or that Order,

(which is to be treated on commencement as if formed and registered under this Act).

Defined in s.1(1) · see it in the full Act

(4) In this section and that Schedule “company” includes any body corporate.

Defined in s.1159(4) · see it in the full Act
director

In the Companies Acts “director” includes any person occupying the position of director, by whatever name called.

Defined in s.250 · see it in the full Act
holding company

(1) The Secretary of State may by regulations amend the provisions of section 1159 (meaning of “subsidiary” etc) and Schedule 6 (meaning of “subsidiary” etc: supplementary provisions) so as to alter the meaning of the expressions “subsidiary”, “holding company” or “wholly-owned subsidiary”.

Defined in s.1160(1) · see it in the full Act
member

(2) In sub-paragraph (1) “member” has the same meaning as it has by virtue of section 7(1) of that Act .

Defined in Sch.2 Pt.1 · see it in the full Act
written resolution

(1) In the Companies Acts a “written resolution” means a resolution of a private company proposed and passed in accordance with this Chapter.

Defined in s.288(1) · see it in the full Act
connected with

(1) This section defines what is meant by references in this Part to a director being “connected with” a body corporate.

Defined in s.254(1) · see it in the full Act
body corporate

“body corporate” and “corporation” include a body incorporated outside the United Kingdom, but do not include—

(a)

a corporation sole, or

(b)

a partnership that, whether or not a legal person, is not regarded as a body corporate under the law by which it is governed;

Defined in s.1173(1) · see it in the full Act
UK-registered company

In the Companies Acts“UK-registered company” means a company registered under this Act. The expression does not include an overseas company that has registered particulars under section 1046.

Defined in s.1158 · see it in the full Act
wholly-owned subsidiary

(1) The Secretary of State may by regulations amend the provisions of section 1159 (meaning of “subsidiary” etc) and Schedule 6 (meaning of “subsidiary” etc: supplementary provisions) so as to alter the meaning of the expressions “subsidiary”, “holding company” or “wholly-owned subsidiary”.

Defined in s.1160(1) · see it in the full Act

Cases considering section 197 (13)

John McCarthy v Ivor Desmond Marshall & Anor

[2026] EWHC 1585 (Ch) · 26 June 2026

Applies the prohibition on loans by a company to a director without shareholder approval. The director’s unauthorised use of company funds for personal expenditure was treated as a breach of fiduciary duty and, on the facts, fraudulent. (see paras [128]; [131]-[133])

Joseph Mark Taylor v James Lee Taylor & Anor

[2026] EWHC 106 (Ch) · 29 January 2026

Applies the statutory approval requirement for loans to a director. The first respondent admitted that personal loans were made without member approval, amounting to a breach supporting the unfair prejudice claim (see paras [175]-[183]).

Core (UK) Limited v Benjamin Puncher & Anor

[2025] EWHC 1962 (Ch) · 31 July 2025

The court applied the member-approval requirement for a company loan to a director. The requirement was relevant to the characterisation and enforceability of the £40,000 payment. (see para [17])

What each judgment says about section 197 is in the case-law panel in the full Act.

Amendments and notes

7 notes from legislation.gov.uk

Modifications

  1. C313Ss. 197-214 modified (22.2.2008) by The Northern Rock plc Transfer Order 2008 (S.I. 2008/432), art. 17(1), Sch. para. 2(i)
  2. C314Ss. 197-214 modified (8.00 a.m. on 29.9.2008) by the The Bradford & Bingley plc Transfer of Securities and Property etc. Order 2008 (S.I. 2008/2546), art. 13(1)(3), Sch. 1 para. 2(i)
  3. C315Ss. 197-214 modified (9.30 a.m. on 7.10.2008) by The Heritable Bank plc Transfer of Certain Rights and Liabilities Order 2008 (S.I. 2008/2644), art. 26, Sch. 2 para. 2(i)
  4. C316Ss. 197-214 modified (retrospective to 30.3.2009 at 8.00 a.m.) by The Amendments to Law (Resolution of Dunfermline Building Society) Order 2009 (S.I. 2009/814), arts. 1(2), 7, Sch. para. 2(i)
  5. C317Ss. 197-214 modified (1.3.2016) by The NRAM plc (formerly Northern Rock plc) Consequential and Supplementary Provisions Order 2016 (S.I. 2016/114), arts. 1(1), 7(1), (3), Sch. para. 1(i)
  6. C318Ss. 197-214 modified (16.7.2026) by The Modification of the Law (British Steel Limited Property Transfer) Regulations 2026 (S.I. 2026/833), regs. 1(2), 6(2), Sch. para. 1

Commencement

  1. I56S. 197 wholly in force at 1.10.2007; s. 197 not in force at Royal Assent see s. 1300; s. 197 in force at 1.10.2007 by S.I. 2007/2194, art. 2(1)(d) (with saving in art. 12 and subject to transitional adaptations specified in Sch. 1 and with transitional provisions and savings in Sch. 3) this amendment is subject to savings and/or transitional provisions, see the commentary.