by Ana Margarita Mortel
Intercompany advances are transactions entered into by related parties, usually for purposes of extending financial assistance to affiliates. This extension of financial assistance ordinarily puts such transactions within the ambit of borrowing and lending, and are akin to loans as defined in Art. 1993 of the Civil Code (i.e. simple loans are contracts where one party delivers to another money or other consumable thing upon the condition that the same amount of the same kind be paid.)
Ordinarily, parties to loan agreements will have formal instruments drawn up as safeguards. After all, these formal instruments conveniently evidence the demandable obligations of the parties under the corresponding contract. However, one must consider that intercompany advances are entered into between related parties. Thus, it is not uncommon for such advances to be unsupported by formal debt instruments. These kinds of arrangements are not usually flanked by formalities attendant to regular loan contracts.