Loan from director in case of liquidation

[romkyns]

Suppose that a private limited company has £100 in paid up share capital, a bank account with £10k and pretty much no other assets (because all computer equipment is owned personally by directors).

The £10k in the bank account was deposited by directors as a no-interest loan to the company.

In the event of liquidation, would the £10k debt to the directors be treated the same as any debts to other creditors? Or would it be bunched into the least preferential "ownership equity" category, and thus compensated only after all other liabilities are settled? Or somewhere in-between?

Thanks!

 

[romkyns]

Anyone? Is it reasonable for the company to explicitly agree with the director that the loan is repayable at the same time as other creditors in case of liquidation, or agree the order/proportion of repayment of each director's contribution?

Or are these things entirely up to the liquidator?

 

[My Office Accountant]

The loan will be treated like any other creditors as it is unsecure.



If you need any more help, please contact us.


MyOfficeAccountant.co.uk

Tel: 0800 988 2656

 

[Jaydee]

... unless you secure it and take a charge to make sure that you are first in the queue upon liquidation.

 

[Chrismckay]

The directors loan would rank equally with other creditors, which means that the £10,000 in the bank account would be divided by the total amount owed to unsecured creditors with each creditor getting p in £ on their debt.

But don't forget that the liquidator's costs come out of the assets before the unsecured creditors!

 

[Alan R Price]

romkyns

You could take a debenture by way of security over the company's assets.

 

[OldWelshGuy]

Out of curiosity, what would be the view if the director called the loan? Could that be seen as the director acting in his own best interests and not in the best interests of the company? Could the director secure the loan against the balance of the current account?

 

[Alan R Price]

Out of curiosity, what would be the view if the director called the loan? Could that be seen as the director acting in his own best interests and not in the best interests of the company? Could the director secure the loan against the balance of the current account?

It would, in my view, only be an issue if the company was insolvent when the debenture was given; and even then, if he lent new money, the charge would probably be valid to the extent of the new money lent.

A director is entitled to take security for money he lends to his company - it quite often happens. He would be within his rights to call in the security if the company became insolvent.

As regards giving a charge over a bank account, I believe it would have to be a "blocked" account in order for there to be a specific charge.