Posted: Thursday, 25 November 2010 @ 18:27
If a director who has loaned money to their company resigns, or is dismissed, can they get their loan back? Many companies, especially in the current economic climate, seem reluctant to repay a director’s loan in this situation.
The first thing to look at is the loan agreement itself, if there is one. It may set out the circumstances when a loan can be repaid. If the written agreement doesn’t deal with this point or, if there is no agreement, then the loan will generally be repayable “on demand”. So, simply write a letter to the company saying you want your loan repaid immediately.
Note however that the company can legitimately refuse to repay the loan if it is insolvent or repaying the loan would make it insolvent (insolvent in this situation means where the company’s liabilities exceed its assets or where it can’t afford to pay its debts as they fall due). If the company then went into liquidation or administration within 2 years of the loan repayment, the ex-director might have to pay it back as being a ‘preference’.
If insolvency isn’t an issue, and there is no loan agreement delaying payment, then the director is entitled to immediate repayment. If the company refuses or neglects to pay, the courts can be asked to order it to do so.
We offer a free telephone assessment for directors trying to get their loans repaid.
Blog by Gary Cousins
Gary has been providing legal advice to shareholders, directors and business owners for over 25 years. Specialising in dispute resolution Gary is based in Birmingham with clients throughout the UK and overseas. View profile
This blog is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation. We offer a free telephone consultation
to discuss your particular circumstances.