The Gazette 1991

GAZETTE

i SEPTEMBER 1991

8. The Criminal Consequences

of Contravention

Where a guarantee contravenes

S.31 of the Companies Act, 1990,

the officers of Guarantor Ltd may

by virtue of S.40 (1) of the Act, be

guilty of an offence, where they

know, or have reasonable cause to

believe, that the company was

contravening S.31. Less clear is the

offence created by S.40 (2), which

provides that:

"A person who procures a com-

pany to enter into a transaction

or arrangement knowing or

having reasonable cause to

believe that the company was

thereby contravening section 31

shall be guilty of an offence."

One question must be, can a soli-

citor who acts either for the lender

or the borrower be guilty of an of-

". . . can a solicitor who acts

either for the lender or the bor-

rower be guilty of an offence

where it can be proved that he

procured Guarantor Ltd to enter

the transaction or arrangement?"

fence where it can be proved that

he procured Guarantor Ltd to enter

the transaction or arrangement?

The penalties prescribed for

commiting either of the foregoing

offences are set out in S.240 of the

Companies Act, 1990. Thus, on

summary conviction, one is liable to

a fine not exceeding £1,000 or at

the discretion of the court, to im-

prisonment for a term not exceed-

ing 12 months, or both. On

conviction on indictment, one is

liable to a fine not exceeding

£10,000, or at the discretion of the

court, to imprisonment for a term

not exceeding 3 years, or both.

It must also be noted that a

contravention of S.31

remains

criminal o f f ence even if the

guarantee is

not

voidable, by virtue

of the "savers" of S.38 (1) (a) and

(b) applying. Their cumulative

effect is merely to prevent a

transaction or arrangement from

being avoided - the fact remains

that there has been a contravention

of S.31, and so it follows that the

sanctions in S.40 continue to apply.

9. When Does e Guarantee

Contravene S.31?

The question of whether any

given guarantee contravenes S.31

is a matter to be decided by each

solicitor and his client looking at the

facts of each individual situation. It

pes

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is not attempted to detail here what

should be sought by a solicitor

acting for a lending institution, but

it would seem that the following

may be included in any new

requisitions:

• Are Borrowings Ltd and

Guarantor Ltd companies

which are part of a group

of companies?

• Who are the shareholders,

what are their holdings,

and who are entitled to

exercise voting rights in

Borrowings Ltd?

• What are their relation-

ships (lineal and marital)

with the directors (includ-

ing shadow directors) of

Guarantor Ltd and of the

265

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