Interest Free Loans

[dublin5guy]

Hi, I have a 10% profit share contract with a company I joined two years ago. Recently I learned that my profitable company made an interest free loan of 100k from our profits to another company linked to a director of my company. I feel that this may have taken €10k of profit which otherwise would have come to me. What are my legal rights in this instance?

 

[cloughy]

the loan would not affect the profits, only to the extent of the non-calculation of interest on this loan, so if the rate should have 10% then interest for the year of 10k should have been recorded by your company for which you would be entitled to 1k of, the thing to ask about is what if the loan is non-recoverable, and no recourse, tehn your profits would be down by 100k, and hence loose you 10k. Is there any relationship between the 2 companies, subsidary or something, in which case intercompany transactions would be permitted, and could be non interest bearing.

 

[contemporary]

Its all in the contract, hard to advise legally without sight of it

However giving a 100k loan to the other company doesnt wipe out the 100k profit, its a reduction in cash not a reduction in profits, you could still be entitled to the 10k if the end of year reports show a profit of 100k, whether the company has the 10k to give you is another story.

Its all down to the audited accounts

 

[censuspro]

the loan would not affect the profits, only to the extent of the non-calculation of interest on this loan, so if the rate should have 10% then interest for the year of 10k should have been recorded by your company for which you would be entitled to 1k of, the thing to ask about is what if the loan is non-recoverable, and no recourse, tehn your profits would be down by 100k, and hence loose you 10k. Is there any relationship between the 2 companies, subsidary or something, in which case intercompany transactions would be permitted, and could be non interest bearing.

It could be a case that the 100K loan had it not be given to the related company could have generted extra profits if it were used as cash flow in the original business.

To answer the OP question, it´s all in the shareholders agreement. As you are not a majority shareholder there may not be a whole lot that you can do in this instance. was it a cas that the other shareholders made this decision themselves. Also, who are the directors of company and are they different to the shareholders? Ultimately it´s down to the mangement of the business and theshareholders agreement. Without more info its hard to give a motre detailed opinion.

 

[Paddy199]

Ask to see the board minutes that sanctioned this. Do you not have a say on the board of directors.

If no board minutes you could make a complaint to the ODCE or the auditor that the companys assets (cash) are being risked by some individual not sanctioned by the board.