Cashing in on corporate goodsApril 20, 2021
Constructing a state of the art infinity pool in the garden of one of its directors could be an example of abuse of corporate goods which speaks to the imagination. But what about setting up complex intra-group loans or securities structures?
When a company thrives, shareholders can expect to benefit from the return on their investment and the growth of the business. Provided the legal thresholds are met, valid manners of distribution are dividends, capital reduction, redemption of shares, a sale of shares, etc. Intragroup loans can be granted in the interest of the legal entity. So far, so good. But when does it become illegal?
Directors (also the de facto directors) of legal entities can be held liable for making abuse of corporate goods if they use the assets or the credit of the legal entity with deceptive intent and for their personal direct or indirect purpose, although they knew that this was significantly to the detriment of the equity interests of the legal entity, its creditors or shareholders. Abuse of corporate goods is a crime.
Does your legal entity have the tools in place and do the relevant players know how to use and implement such tools? The comparison between risk management and driving a sport cars speaks for itself. Appropriate instruments, drivers knowing how to use the instruments and crew knowing the traffic rules, a safe environment can be created and the risk of driving a sports car is a managed risk. Good corporate governance contributes to such safe environment.