Skip to content

CS Executive · Company Law and Practice · Board Composition and Powers of the Board

Sagar Pharma Ltd obtained a loan from its bankers repayable within four months to fund a seasonal purchase of raw material. Which statement is correct for the purpose of the borrowing restriction on the Board's powers?

The loan is a temporary loan and is excluded from the borrowing limit test. Temporary loans are those from bankers in the ordinary course that are repayable on demand or within six months, including short-term seasonal loans, and not raised for capital expenditure.

  1. AIt is a temporary loan and is excluded when testing the borrowing limitCorrect
  2. BIt counts towards the limit because all bank loans do
  3. CIt is excluded only if repayable within thirty days
  4. DIt is excluded only if the members approve it by ordinary resolution

Explanation

Temporary loans are loans repayable on demand or within six months, such as short-term and seasonal loans, obtained from bankers in the ordinary course of business. A four-month seasonal loan qualifies. It is excluded unless raised for capital expenditure.

Did you get it right without looking?

One question tells you little. A timed set on Board Composition and Powers of the Board shows your real accuracy, how long you take and where you lose marks.

Practise Board Composition and Powers of the BoardFree diagnostic mock

More Board Composition and Powers of the Board questions