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ACCA Applied Skills · Corporate and Business Law (Global) · Capital maintenance and dividend law

Vela Ltd is a private company with distributable profits. It gives a loan to Tom to buy Vela Ltd's shares, and the loan is made in the ordinary course of Vela Ltd's business, which is lending money. Which statement is most accurate?

The loan may be permitted under the exception for lending in the ordinary course of business by a company whose business includes lending money. The restriction is not absolute, and a short repayment period is not what makes such lending lawful.

  1. AThe loan is prohibited because any loan connected to its own shares is unlawful
  2. BThe loan may fall within an exception for lending in the ordinary course of a company whose business includes lending moneyCorrect
  3. CThe loan is lawful only if Tom repays within one month

Explanation

A recognised exception covers money lent in the ordinary course of business by a company whose ordinary business includes lending money. It does not depend on repayment within a month, and the restriction is not absolute.

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