Current through Register Vol. 49, No. 6, March 15, 2024
PURPOSE: Section
362.170,
RSMo limits the amount which may be loaned to "any individual, partnership,
corporation, or body politic." Section 362.170.2(c), RSMo requires that certain
loans be aggregated for the purpose of determining whether the limit on loans
to a certain entity has been exceeded. Thus, the law states that liabilities of
an individual, partnership or corporation must be aggregated with all loans
made for the benefit of that individual, partnership or corporation. This
office will attempt to effectuate the strong public policy evidenced by the law
which is to prevent a bank from becoming overextended to any single concern.
Recently, we have witnessed several departures from this public policy and
sound banking principles with potentially disastrous results. In order to
comply with this section of law, a bank must know which loans should be
aggregated and treated as a single line of credit and which loans may be
treated separately. This rule establishes some guidelines for compliance with
the statute and formalizes the existing policy of the Division of
Finance.
(1) Rule. The
obligations of two (2) or more corporations, partnerships or individuals, or a
combination, shall be aggregated pursuant to the following guidelines:
(A) If the proceeds of loans to two (2) or
more entities were used for the benefit of a single individual or enterprise,
the loans shall be aggregated; and
(B) If two (2) or more entities are
effectively operating as separate departments or divisions of a single
enterprise, loans to these entities shall be aggregated.
(2) Factors. The decision to aggregate two
(2) or more loans under this rule shall be made after considering all relevant
factors, including the following:
(A) The
extent to which the loans are made to borrowers controlled by the same
shareholder or group of shareholders;
(B) The degree to which the bank is relying
on a single entity as the source of repayment;
(C) The degree to which one (1) individual,
or small group of individuals, dominates management decisions of two (2) or
more borrowers;
(D) The
proportionate dependence of one (1) borrower upon another as a market for, or
supplier of, goods or services;
(E)
The extent to which proceeds of a loan to one (1) obligor will flow to the
obligor of other loans; and
(F) The
degree to which repayment of one (1) loan is secured by or dependent upon
moneys to be paid by the obligor of other loans.
(3) Examples.
(A) Corporation A derives all of its income
from the production of sausage. Its entire production is sold each year to
corporation B whose income is one hundred percent (100%) derived from the
retail marketing of this sausage. A is B's sole supplier of this sausage. A and
B are owned or controlled by the same individual or group of individuals. The
Division of Finance would treat A and B as a single enterprise and loans to A
would be aggregated with loans to B to determine compliance with the legal loan
limit.
(B) A and B corporations are
owned by the same individuals but operated independently. A is engaged in the
dental supply business and B is exclusively engaged in farm machinery. A loan
to A would not be attributed to B unless the proceeds were loaned or paid over
to B by A or unless the bank looks primarily to one (1) corporation for
repayment of both debts.
(C) One
(1) individual owns three (3) corporations which are primarily engaged in the
construction business. Corporation A holds title to real estate (a warehouse),
corporation B holds title to construction equipment and corporation C is an
operating company which borrows for inventory, receivables, payroll (work in
progress). Loans to these three (3) corporations would be combined since they
are effectively operating as separate departments or divisions of a single
enterprise.
(D) Corporation A has
substantial indebtedness and needs additional capital funds. Corporation B is
formed by the principals of corporation A for the single purpose of acquiring
certain assets from corporation A and leasing them back to A. The Division of
Finance would treat A and B as a single enterprise and loans to A would be
aggregated with loans to B to determine compliance with the legal loan
limit.
(E) Assume all the same
facts that are set forth in subsection (3)(D), with the exception that the
entity acquiring the property to be leased back is a large independent
corporation in the leasing business. Loans to B would not be attributed to A if
it is determined the sale lease back is an arms-length business
transaction.
(F) An individual
borrows money to purchase stock or indebtedness in a closely held corporation.
The credit would be attributed to the corporation if the corporation, directly
or indirectly, receives the proceeds and if there were no source of repayment
other than the successful operation of the corporation.
(G) Assume the same situation as set forth in
subsection (3)(F), except the loan to the individual is secured by readily
marketable stock of a publicly held corporation. Obligations of individuals
which are secured by readily marketable securities of a publicly held
corporation will not be aggregated with indebtedness of the corporation which
issued the securities.
(4) Effect on Existing Credit. This rule,
until January 1, 1984, shall not affect any credit in existence on September
11, 1982 which, absent this rule, would have been in compliance with the
previous policy toward attribution of loans; provided that an extension to
January 1, 1985 may be obtained from the Division of Finance upon the bank's
demonstration, in writing, that an undue hardship would result.
*Original authority: 361.105, RSMo 1967 and 362.170, RSMo
1939, amended 1941, 1943, 1945, 1959, 1963, 1967, 1977, 1981, 1983, 1985, 1986,
1989.
