Building Societies Act, 1989

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Restrictions on loans etc. to directors and connected persons.

57.—(1) Subject to this section, a building society shall not—

(a) make a loan to a director or a person connected with a director of the society;

(b) dispose of property by way of lease or hire to a director or a person connected with a director of the society;

(c) make a payment on behalf of a director or a person connected with a director of the society in connection with the provision of any services under Part III ;

(d) enter into any guarantee or provide any security which is incidental to or connected with any such loan, disposal of property or payment; or

(e) take part in any arrangement whereby—

(i) another person enters into a transaction which if it had been entered into by the society would have contravened any of paragraphs (a) to (d), and

(ii) that other person, in pursuance of the arrangement, has obtained or is to obtain any benefit from the society or a subsidiary of the society.

(2) Subsection (1) (a) does not apply to—

(a) any loan the amount of which when aggregated with any other relevant loans does not exceed £2,500;

(b) any loan made in the ordinary course of the society's business, the amount of which is not greater, and the terms on which it is made are not more favourable, than it is reasonable to expect the society to have offered to a person of the same financial standing but not connected with the society;

(c) any loan, the amount of which, when aggregated with any other relevant loans, does not exceed £50,000 made for or towards the purchase or improvement of a house used or to be used as the director's only or main residence and provided that loans of that description and on similar terms are ordinarily made to employees of the society.

(3) Subsection (1) (b) does not apply to any lease or hiring of property—

(a) the value of which when aggregated with the value of any other relevant leases or hirings does not exceed £5,000;

(b) which is made in the ordinary course of the society's business and is on terms not more favourable than it is reasonable to expect the society to have offered to a person unconnected with the society.

(4) Subsection (1) (c) does not apply to any payment—

(a) amounting, when aggregated with any other relevant payments, to no more than £1,000 in respect of which the person on whose behalf it is made is under an obligation to reimburse the society within a period not exceeding 2 months beginning with the date of the payment; or

(b) of an amount not greater and on other terms not more favourable than it is reasonable to expect the society to have offered to a person of the same financial standing but not connected with the society.

(5) Subject to compliance with the requirements of subsection (6), subsection (1) does not preclude a society from doing anything to provide a director with funds to meet expenditure incurred or to be incurred by him for the purposes of the society or for the purpose of enabling him properly to perform his duties as a director of the society nor does it preclude the society from doing anything to enable a director to avoid incurring such expenditure.

(6) The following are the requirements referred to in subsection (5)—

(a) the things must either be done with the prior approval of the society given at a general meeting at which the requisite matters are disclosed or be done on condition that, if the approval of the society is not so given at the next annual general meeting, the loan is to be repaid, or any other liability arising under the transaction is to be discharged, within 6 months from the conclusion of that meeting; and

(b) the amount provided, when aggregated with any other relevant provision of funds, does not exceed £10,000.

(7) The following are the requisite matters which must be disclosed for the purposes of subsection (6) above—

(a) the purpose of the expenditure incurred or to be incurred, or which would otherwise be incurred, by the director;

(b) the amount of the funds to be provided by the society; and

(c) the extent of the society's liability under any transaction which is or is connected with the thing in question.

(8) A transaction or arrangement falling within subsection (1) is, for the purposes of this Part, made for a person if—

(a) in the case of a loan, disposal or payment within paragraph (a), (b) or (c) of subsection (1), it is made, in the case of paragraph (a) or (b) to him or, in the case of paragraph (c), on his behalf;

(b) in the case of a guarantee or security within paragraph (d), it is made as an incident of or in connection with a loan or disposal to him or a payment on his behalf; or

(c) in the case of an arrangement within paragraph (e), the transaction to which the arrangement relates was made for him.

(9) In this section—

“relevant”, in relation to a transaction of a description falling within paragraph (a), (b) or (c) of subsection (1), means an outstanding or, in the case of a lease or hiring, current transaction of that description (whether entered into by, or by arrangement with, the society), not being one authorised by any other authorising provision;

“authorising provision” and “authorised”, in relation to a transaction of a description falling within paragraph (a), (b) or (c) of subsection (1), mean respectively any provision of subsection (2), (3) or (4) or constituted by subsection (5) and any transaction or thing done to which that paragraph does not apply or which is not precluded from being done by virtue of that provision;

“outstanding”, in relation to loans, means outstanding in respect of any principal or interest and, in relation to the provision of funds subject to a condition for repayment or discharge of any other liability, means unpaid or undischarged to any extent;

“provision of funds” includes anything else which, by virtue of subsection (5), a society is not precluded from doing by subsection (1).