Section 45 Requirements for Intra-Group Loans
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Intra-group financial assistance is common in corporate structures. It can take the form of loans, guarantees, or securities. But few directors realise that these seemingly routine transactions carry significant legal risk under Section 45 of the Companies Act, 2008.
As PwC outlines in its Synopsis (August 2025), misunderstanding or overlooking Section 45 can render transactions void and expose directors to personal liability. It is therefore essential that directors understand both the requirements and the exceptions embedded in this provision.
What Does Section 45 Cover?
Unless specific conditions are met, Section 45 prohibits any direct or indirect financial assistance by a company to:
A related entity
A member of the same group of companies (including subsidiaries and holding companies)
A person related to such entities.
This includes loans, guarantees, or the provision of any form of security for a related party’s obligations.
⚠️NOTE: There only exception to this rule is that no shareholder resolution is required if the financial assistance is extended to a wholly owned South African subsidiary (provided that the company’s Memorandum of Incorporation (MOI) does not prohibit such assistance). The exception does not apply to foreign subsidiaries. Where the assistance is cross-border, even within the same group, full compliance with Section 45 is mandatory, including shareholder and board approvals.
This was confirmed by the Trevo Capital Ltd v Steinhoff International Holdings case, making it clear that Section 45 applies even to cross-border transactions. This decision highlights the fact that Section 45 is not limited by jurisdiction and must be observed in all group structures that include South African entities.
Key Legal Requirements of Section 45
Before a company may provide financial assistance to a related party, the following five requirements must be met:
Solvency and Liquidity Test
The board must be satisfied that the company will, after providing the assistance, remain both solvent and liquid as per the definition in Section 4 of the Act.Fair and Reasonable Terms
The transaction must be justifiable and equitable in the context of the company’s financial position and risk appetite. The terms should make sense for the company, not merely for the group.Shareholder Approval
A special resolution by shareholders is required, unless the assistance is to a wholly owned South African subsidiary and permitted by the MOI.MOI Compliance
The company must check that its MOI permits such financial assistance and does not impose additional restrictions or procedural hurdles.Board Authorisation and Proper Records
The board must authorise the assistance in advance and keep a detailed record of the reasons for approval, demonstrating that directors have applied their minds and complied with their fiduciary duties.
The Meaning of “Fair and Reasonable”
The terms “fair and reasonable” are not defined in the Act, but they have practical interpretations:
“Fair” implies that the transaction is impartial and not unduly favourable to one party at the expense of the other.
“Reasonable” suggests that the terms are sensible and commercially sound in the context of the company’s circumstances.
In short:
Would a prudent, independent lender agree to the same terms? Would the company enter into a similar arrangement with an unrelated third party? If not, they must justify why the proposed terms remain in the company’s best interest.
Leveraging Transfer Pricing Principles
Given the requirement to prove that financial assistance is fair and reasonable, many companies now rely on transfer pricing methodologies, particularly those compliant with OECD guidelines, to validate the commercial soundness of intra-group transactions. Using a transfer pricing report can:
Provide objective, arm’s-length benchmarks for interest rates and loan terms
Strengthen the legal defensibility of the board’s decision
Enhance transparency and consistency across group transactions.
What more, it can keep you safe from SARS’s scrutiny. Incorporating this analysis into board resolutions and supporting documentation is now seen as a best practice.
For more guidance on this refer to the SARS Interpretation Note 127 Determination of The Taxable Income of Certain Persons from International Transactions: Intra-Group Loans.
For practical guidance read our article on transfer pricing.
Practical Recommendations for Directors
To ensure full compliance and reduce risk exposure, companies should:
Conduct a formal solvency and liquidity assessment before approving assistance
Ensure that shareholder resolutions are properly obtained where required
Document a clear business rationale and fairness assessment in the board minutes
Engage transfer pricing specialists to provide supporting analysis
Confirm that the MOI permits such transactions and does not introduce further conditions.
In Summary
Section 45 is a statutory safeguard designed to ensure that companies act prudently when providing financial assistance within group structures. Directors who fail to comply risk having transactions declared void, facing personal liability, and damaging their professional reputation.
By aligning governance processes with both legal requirements and transfer pricing best practices, companies can navigate these transactions with confidence.
