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ACCA Applied Skills · Corporate and Business Law (Global) · Loan capital

Zephyr Ltd is a private company whose articles are silent on borrowing limits. The directors wish to borrow $200,000 from a bank to fund new equipment. Which statement is correct?

A trading company has an implied power to borrow, and the directors exercise it on the company's behalf unless the articles restrict them. No special resolution is needed for each loan, and issuing debentures is not a precondition of borrowing.

  1. AThe company has capacity to borrow, and the directors may exercise this power on its behalf unless the articles restrict themCorrect
  2. BThe company may borrow only if the members pass a special resolution for each loan
  3. CThe company may borrow only if it has first been authorised to do so in its objects clause and has issued debentures

Explanation

A trading company has an implied power to borrow for the purposes of its business, and the directors normally exercise the company's powers. No member resolution is needed unless the articles or law require one. The special resolution option is wrong because there is no such general requirement.

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