Can a CIC repay a director’s loan with company assets?

[Mario - TFA]

Hello everyone, looking for input from anyone with CIC experience especially around asset lock rules and director’s loans.

I’m advising (but not acting for) a contact who’s planning to close his CIC. It holds around £40k in assets after depreciation and owes the director £50k in director’s loan representing money the director has invested in the CIC over time. Currently, there’s little to no cash in the business.

He now wants to recover some of this value before winding up, and he’s wondering whether the CIC can repay the director’s loan by transferring the equipment to him directly, before dissolution. In other words, the CIC transfers the assets in lieu of cash repayment as part of a documented director’s loan repayment.

This asset transfer will be based on fair market value and fully documented (loan balance, asset valuation, board resolution).

I know CIC Regulation particularly for asset transfers are quite strict, but I haven't seen anything that blocks loan repayments as long as they’re legitimate liabilities.

To be clear, I’m not filing accounts or transacting on this contact's behalf. I’m helping him understand his options and may refer him to another accountant if necessary. Not looking to “experiment” with CIC law, just want to know if this is feasible or if it’s asking for trouble.

Would really appreciate any thoughts or red flags from those who’ve handled CIC closures or similar asset transfer situations. Thanks in advance!

 

[elaine@cheapaccounting]

Are there any other creditors in the CIC?

What do the Articles say about Asset Lock?

See https://www.gov.uk/government/publi...ommunity-interest-companies-guidance-chapters

Specifically .....

Asset Locked Body Nomination​

It is important to consider whether you want to nominate an asset-locked body as a recipient of your CIC’s assets in the CIC’s Articles.

Such a nomination may prove particularly important in the event of the CIC being wound up or dissolved when it is not insolvent, as, in the absence of a nomination, the CIC will be in consultation with the Regulator to decide the destination of any remaining assets.

In addition, the Regulator will have to approve any transfers (for less than full consideration) to asset-locked bodies which are not nominated in the CIC’s Articles.

There is some detailed info there on asset lock. I suspect your client needs expert advice here.

Good luck

 

[Lisa Thomas]

Are there any other creditors? Have the assets been professionally valued? It sounds like the CIC insolvent so needs careful handling.

 

[Mario - TFA]

Are there any other creditors? Have the assets been professionally valued? It sounds like the CIC insolvent so needs careful handling.

Hi Lisa, there are no other creditors or liabilities. The only liability that the CIC has is the director's loan. I don't think they have considered professional valuation, the value of the assets will be confirmed with market price for similar assets.

It would be good to have a video call if you are free.

Thanks!

 

[Elliot Green]

Hi Lisa, there are no other creditors or liabilities. The only liability that the CIC has is the director's loan. I don't think they have considered professional valuation, the value of the assets will be confirmed with market price for similar assets.

It would be good to have a video call if you are free.

Thanks!

The company appears to be balance sheet insolvent and unless the assets are worth more than the director loan then likely cashflow insolvent as well depending on the terms of the director loan.

In view of the nature of the company an independent valuation looks in order.

Liquidation might be avoided if the director was to write off the balance of their loan account.

 

[Lisa Thomas]

I agree with Elliot's reply.