The creditor has the right to charge interest on the commercial loan
Question: I am a partner and director in a limited liability company. Three years ago, I requested a personal loan from the company. The Board of Directors approved the loan, but with an interest rate of 9% annually. Currently, I am financially insolvent and have not repaid the debt. The Board of Directors decided to freeze my entire salary for the purpose of paying the debt. Does the company have the right to withhold my entire salary in exchange for paying the debt? Does the company have the legal right to give me this loan with a high interest rate, and what is the appropriate legal action to take? Please advise.
Answer: I would advise the questioner that:
In case your relationship with the company is an employment one, which means that you have an employment contract with MOHRE and been paid a salary through the WPS system, then they do not have the right to withhold your entire salary in exchange for paying the debt and at the same time they do not have the right to give you this loan with any interest rate, according to Article 25 of the Labour Federal Law.
According to the law, companies can recover loans paid to a worker in excess of his entitlements, provided that the amount deducted shall not exceed twenty per cent (20%) of the wage. If there are multiple reasons for deduction from the wage, it is not permissible in all cases for the percentage of deduction to exceed fifty per cent (50%) of the wage).
But in case your relationship with the company is not an employment, then the company has the right to give you a loan with such interest rate. The law did not consider the act of giving interest as usury if it is given by a company to a natural person. Moreover, Article 72 of the Commercial Transactions Law No. 50 of 2022 states that (The creditor shall have the right to charge interest on the commercial loan as per the rate stated in the contract. If the interest rate is not determined in the contract, it shall be calculated as per the interest rate prevailing in the market at the time of transaction. However, in this case, the rate shall not exceed (9%) per annum until full payment.)
Regarding withholding your entitlements by the company, you have to check the loan agreement’s terms and conditions to decide your situation and if such withholding is against these term and conditions, then you may file a civil case against the company to return the money.
Sign up for the Daily Briefing
Get the latest news and updates straight to your inbox