Legality of Loan

[ChrisTheScot]

Good morning everyone, long story for this one but I’ll keep it short and to the point.

At the end of the year before covid I got into a “business deal” with a Ltd company.
This company gave me personally a loan of £18k and I agreed to pay this back over X amount over X many months.

Along side of this I was given help setting up to start my own Ltd company where I was the only director and share holder.
This allowed me to carry out work and offer better rates for this company that lent me the money.

The loan was written up by the solicitor of the Ltd company (based in the hospitality/food industry) and signed by myself to say that I would pay this back.

Questions/queries

1. Are their any regulations for private ltd companies not in the financial sector carrying out lending?

2. The lending company had removed money from invoices produced by my Ltd Company to account for some of the money lost to a loan that was made out to me personally, am I correct that this is wrong?

3. Is there legal ways where this company can write of this debt to me without me going down the bankruptcy route?

4. How enforceable is a non FCA unsecured loan in the eyes of a court?


Thanks in advance for any answer or help.

 

[Mark T Jones]

1. I haven't checked bang up to date, but from memory it is legal to provide loans on a one-off without FCA authorisation.

2. Depends on the terms of the contract

3. Why would they want to?

4. Depends on the circumstances, detail and relative conduct.

From what you have written, it would appear that the lender has fullfilled their part of the contract but you are looking to wriggle out of yours. It would also appear that your company is making money as they are able to deduct it.

 

[ChrisTheScot]

Hi mark, thanks for the reply.

I am trying to get out of it as there are other aspects that are outside of the actual written agreement that were verbally agreed or acknowledged in emails.

The 2 main side parts to the agreement of the Loan that fell through at the start of covid as well.
Hourly rates were agreed and set at £10-15 cheaper than competitors.
The other company agreed to supplement my wages up to our agreement amount per month and before any loan was written up.
Once my ltd company was profiting enough the supplementing would have stopped.

I have already been explained to this company that my losses in the first year have to be attributed to low rates as the high majority of my work was on their sites.

I fully accept all my own stupid choices I’ve made through this business deal but as like many over this last 2 years my finances have been alliterated and I have defaulted on every credit agreement I had.
This one loan will be the one that starts or stops bankruptcy for me.

 

[Mark T Jones]

Hi mark, thanks for the reply.

I am trying to get out of it as there are other aspects that are outside of the actual written agreement that were verbally agreed or acknowledged in emails.

The 2 main side parts to the agreement of the Loan that fell through at the start of covid as well.
Hourly rates were agreed and set at £10-15 cheaper than competitors.
The other company agreed to supplement my wages up to our agreement amount per month and before any loan was written up.
Once my ltd company was profiting enough the supplementing would have stopped.

I have already been explained to this company that my losses in the first year have to be attributed to low rates as the high majority of my work was on their sites.

I fully accept all my own stupid choices I’ve made through this business deal but as like many over this last 2 years my finances have been alliterated and I have defaulted on every credit agreement I had.
This one loan will be the one that starts or stops bankruptcy for me.

It might be that bankruptcy or IVA is your best option - @Lisa Thomas can advise .

The positive for you is that they have to chase you and pursue through the court (if it comes to that), though this appears to be negated by the fact that they are deducting payments from invoices.

I don't think the legality of the agreement is a card you can play, conduct might be..

 

[WaveJumper]

Guessing you biggest problems are going to be that the loan was made to you personally and not the Ltd. and assume they had personal guarantees written into the agreement. Unfortunately as always the devil is going to be in the detail

 

[Lisa Thomas]

It might be that bankruptcy or IVA is your best option - @Lisa Thomas can advise .

The positive for you is that they have to chase you and pursue through the court (if it comes to that), though this appears to be negated by the fact that they are deducting payments from invoices.

I don't think the legality of the agreement is a card you can play, conduct might be..

I'd be happy to explore your options as regards the best personal insolvency procedures that might suit you in the circumstances.

I cannot give any advice on the loan itself.

 

[japancool]

The other company agreed to supplement my wages up to our agreement amount per month and before any loan was written up.

Sorry, I'm confused. Are they doing this?

 

[ChrisTheScot]

Hi Lisa, thanks for the reply but at the moment I’m not looking for advice on the insolvency issue.



Are there any legal ways companies can wipe loans like this? The money was initially borrowed in Sep 2019 if time scale is a factor.

I know mark asked why they’d do this but I am still able to help them save costs in repairing equipment where the bigger companies in my area would charge more.
At the same time as this I have defaulted on my own debts so this one debt is the decider about the direction I take.

 

[ChrisTheScot]

Sorry, I'm confused. Are they doing this?

No this part of the deal fell through.

 

[IanSuth]

So are you saying (and if not please correct)

You worked for X

You both decided you would cease to be employed by them but would start a ltd co where part of what you would do would be to repair the machinery that you used to do as an employee but you would also sell your services to other companies. They "lent" you £18k to set up the ltd and in return you agreed to give them a good £ph rate and they also promised (but not in writing) to make up your earning so you were no worse off than before. However covid happened, you couldnt make money as you couldnt get new clients and they (your only real client) were on a stupid low rate, but they are deducting loan repayments from the payments to your LTD for the works done ?

If that is the case then the issues i can see are

1. Was the loan to ChrisTheScot ltd or ChrisTheScot the individual, if the individual i am not sure their basis for deducting from the invoices of the ltd co (different legal entities), this all depends on the exact wording of the loan contract

2. If they are your only client and they have this degree of control you may actually be a disguised employee - it would be worth getting decent advice from an employment lawyer, as if you have been for the last 3 years it may change a lot of things with regard to things they should have paid you. or for you. That will all come down to the exact relationship you have with them with regard to the work being carried out and control etc

 

[ChrisTheScot]

So are you saying (and if not please correct)

You worked for X

You both decided you would cease to be employed by them but would start a ltd co where part of what you would do would be to repair the machinery that you used to do as an employee but you would also sell your services to other companies. They "lent" you £18k to set up the ltd and in return you agreed to give them a good £ph rate and they also promised (but not in writing) to make up your earning so you were no worse off than before. However covid happened, you couldnt make money as you couldnt get new clients and they (your only real client) were on a stupid low rate, but they are deducting loan repayments from the payments to your LTD for the works done ?

If that is the case then the issues i can see are

1. Was the loan to ChrisTheScot ltd or ChrisTheScot the individual, if the individual i am not sure their basis for deducting from the invoices of the ltd co (different legal entities), this all depends on the exact wording of the loan contract

2. If they are your only client and they have this degree of control you may actually be a disguised employee - it would be worth getting decent advice from an employment lawyer, as if you have been for the last 3 years it may change a lot of things with regard to things they should have paid you. or for you. That will all come down to the exact relationship you have with them with regard to the work being carried out and control etc

Thanks for the reply Ian.

Long story still but main points..

I worked for company “A” which carried out repairs initially on the lending company X sites.
I was then approached by company X to set up a Ltd company that I would run. Focusing on their sites but then looking for private work to fill time and bring in additional income.
I left Company A and company X set up ChrisTheScot Ltd.

The money given to me was used to clear an outstanding loan I had that was high in interest.
During the 2-3 years I ran the company, company X had low rates and I incurred debts that I have argued with the company X that they are partially responsible for.

They were my main client for the first year with a few private customers then after the covid breakaway/fall out I then started bringing in more private work whilst still carrying out work for company X.

Thanks for the input on number 2, it’s not something I’ve heard of but I’ll look into it to it.

 

[IanSuth]

Thanks for the reply Ian.

Long story still but main points..

I worked for company “A” which carried out repairs initially on the lending company X sites.
I was then approached by company X to set up a Ltd company that I would run. Focusing on their sites but then looking for private work to fill time and bring in additional income.
I left Company A and company X set up ChrisTheScot Ltd.

The money given to me was used to clear an outstanding loan I had that was high in interest.
During the 2-3 years I ran the company, company X had low rates and I incurred debts that I have argued with the company X that they are partially responsible for.

They were my main client for the first year with a few private customers then after the covid breakaway/fall out I then started bringing in more private work whilst still carrying out work for company X.

Thanks for the input on number 2, it’s not something I’ve heard of but I’ll look into it to it.

If you had multiple other clients it likely No2 is irrelevant, it is really where someone is contracted like a contractor/supplying company but the actual relationship is one of employee/employer, in that case you are actually a disguised employee and things like pension payments, NI contributions, holiday comes into play (as well as income tax)

this is place to start (i wont say good as i understand a lot of people come out as disguised employees who actually aren't) https://www.gov.uk/guidance/check-employment-status-for-tax

 

[NickGrogan]

If you feel that the loan was made illegally, then you should repay it as soon as you can, replacing it with a legal loan if necessary.

 

[japancool]

If you'll forgive me for saying so, it seems like the company did you a massive favour.

They lent you a fair amount of money to settle your personal affairs. This wasn't even money to invest in the new business. They set up a company for you. They provided you with a guaranteed source of work. It's not their fault you haven't been able to gain enough clients to supplement your income.

You may legally have a case because they've deducted money from invoices, but morally, you should take responsibility for the loan. Get an evening job delivering Just Eat or Uber, or something.

 

[Gyumri]

I think it is clear that the lending company would have a right to set off sums they owe "your" company against what you owe them personally. It's not the distinct legal personalities that matter but that the mutual debts are so closely related.

 

[Mark T Jones]

I think it is clear that the lending company would have a right to set off sums they owe "your" company against what you owe them personally. It's not the distinct legal personalities that matter but that the mutual debts are so closely related.

Complete nonsense

 

[Gyumri]

I don't necessarily agree.
See https://www.bailii.org/ew/cases/EWCA/Civ/2010/667.html

 

[Ian J]

I don't necessarily agree.
See https://www.bailii.org/ew/cases/EWCA/Civ/2010/667.html

That concerns setoff between two parties which isn't the case here as the individual and his limited company are two separate legal entities

 

[Gyumri]

If the lender sued Mr A for the return of its loan, Mr A's company would join the claim as a part 20 claimant to recover from the lender what it is owed on its invoices. There would undoubtedly be a set off between the parties despite the legal personalities.

 

[Mark T Jones]

It's not the distinct legal personalities that matter but that the mutual debts are so closely related.

This point here is wrong, pure and simple.

The contracted parties and the relevant terms are absolutely critical.

Assuming the OP wants to go through the legal process there is some chance that they can swing a case on obscure case law - but it is just that, a small chance.

 

[IanSuth]

Not least because there are very specific legal differences between employing christhescot to mend machines and contracting christhescot ltd to ensure the machines keep running. It would be very dangerous (in terms of employment liabilities) for Company X to actually say ChristheScot and Christhescot Ltd were legally jointly responsible as then there could be an argument that therefore the relationship was one of employer/employee and several things come into effect - both with regard to min rates of pay/holidays/ni/pensions but also all the rules regarding illegal deductions form pay which would apply if you start saying the invoices relate to employment and you are making loan deductions from them.

999/1000 i think this is a case where they are different legal entities and so the liabilities of one are not the liabilities of the other

 

[Gyumri]

You are correct of course but I am referring to legal set off apart from an equitable set off. The point raised was whether the borrower could blow a raspberry at the lender in regard to his personal loan while at the same time expect the lender to pay his company's invoices!

Apart from it being rather unfair the lender would be entitled to a legal set off as opposed to an equitable set off were the borrowers company ever try to sue to get its invoices paid.

In construction contracts it is always the case that parties have distinct legal personalities but that does not prevent set offs being claimed and awarded by the court.

 

[Gyumri]

The liabilities are different but that does not effect the issue of set off. Whether the borrower can possibly be perecieved as a worker of the lender under the Employment Rights Act is another point entirely.