Director Loan

[Spudney]

Hi

Say If someone lent a company €20,000 as a loan and it shows as a directors loan on the books isnt it a legal given that the company has to pay back that loan once it hasnt gone bust?

what situations would they get away with not paying back the loan?

Thanks in advance

 

[paddy26]

It is illegal under Company Law for Directors to take a loan from the company for in excess of 10% of net assets. If Directors loan the money and the company go bust then they will be paid out of the proceed of liquidation depending on the level of debt it is (secured/ unsecured etc). I would imagine it would be unsecured and probably one of the last debts to be paid.

 

[mcaul]

It is illegal under Company Law for Directors to take a loan from the company for in excess of 10% of net assets. If Directors loan the money and the company go bust then they will be paid out of the proceed of liquidation depending on the level of debt it is (secured/ unsecured etc). I would imagine it would be unsecured and probably one of the last debts to be paid.

The OP is asking about an individual lending to a company rather than the other way around.

A loan by a director or any other person to a company is treated as a debt. The director may state that he/she will not request repayment or may request for the loans to be transferred into shares.

But as long as it is unpaid, it remains on the books as a debt and would be treated equal to other debt in the case of the company closing

 

[Graham_07]

But as long as it is unpaid, it remains on the books as a debt and would be treated equal to other debt in the case of the company closing

It would not be treated equal to other debt. Some other debt would be
- Preferential e.g. Certain elements of Revenue debt and employees wages
- Secured e.g. bank debt with security
- Some creditors with reservation of title

A standard unsecured directors loan would be well down the line after these.

 

[mcaul]

It would not be treated equal to other debt. Some other debt would be
- Preferential e.g. Certain elements of Revenue debt and employees wages
- Secured e.g. bank debt with security
- Some creditors with reservation of title

A standard unsecured directors loan would be well down the line after these.

In terms of a business trading in a normal way that has no issues with insolvency (as per the OP) the loan is treated the same as any other debt in the company.

If the company goes bust, it is a different situation altogether, but the question is asked regarding a solvent company and a loan made by a director of that company so the issue of preferential creditors does not arise in this situation.


edit - reading my answer again, it should have said "treated the same as any other equivalent debt"

 

[Graham_07]

In terms of a business trading in a normal way that has no issues with insolvency (as per the OP) the loan is treated the same as any other debt in the company.

If the company goes bust, it is a different situation altogether, but the question is asked regarding a solvent company and a loan made by a director of that company so the issue of preferential creditors does not arise in this situation.


edit - reading my answer again, it should have said "treated the same as any other equivalent debt"

True, but no harm in the OP being aware of the status in case insolvency becomes an issue. There seems to be some worry in the OP's post that the company is trying to (quote OP) "get away with not paying back the loan" ONe might wonder why that is the case.