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Capitalising Director Loans

Hello there

I have a client who formed company with 2000 shares of £1 and own one share in the company. Also invested £120,000 which is still on the DLA.
The bank have asked him to capitalised the Director loan.
What the options here??

Any of them and How?
Unsecured interest free long term loan..
Preference shares

Thanks

Gul Jee

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By Anonymous
10th Mar 2009 17:07

sign of the times
Problem is that the banks long since have got rid of the "grey heads" who knew what they were talking about to accommodate the likes of the brilliant and dynamic Fred Goodwin.

Now that this new breed are hitting uncharted territory for the first time they're bricking themselves as they have no idea what to do hence situations like this and the ever increasing number of bizzare conversations I'm sure we're all having with people who basically are scared for their jobs.

Good luck!!

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By EmmaJee
10th Mar 2009 16:22

I agree James Smith
but if £120 was capitalised as unsecured long tern loan (interest free or say 2%)
Is it allowed to do so? and does it need to be reported to companies house?

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By EmmaJee
10th Mar 2009 14:27

Phil Rees
I understand what you mean Phil Rees. but it is not easy to do in current situation to find another lender.

what would you say if £120 was capitalised as unsecured long tern loan (interest free or say 2%)
Is it allowed to do so? and does it need to be reported to companies house?

regards

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10th Mar 2009 14:02

My brow is knotted

This makes no sense. I would tell the client to resist such nonsense by the bank. If the bank get difficult then change banks.

If the bank manager is competent then there will be a personal guarantee in place. Capitalising the director's loan into further shres will benefit nobody and would cause a bona vacantia problem in the event of a future 652 wind up.

I would start by asking the bank for a detailed explanation of why the client should be expected to waste time and incur fees doing something that will not improve the bank's position and will worsen his own.

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By EmmaJee
10th Mar 2009 13:45

thanks Hamish and yes you are right I meant to say "company has an authorised share capital of 2,000 £1 shares with 1 £1 share in issue." :)

the business is Whole sale Cash and Carry and no plans to sell/buy etc in near future.
in addtion to £120k another £300k was borrowed from the bank 4 years ago.

Maybe because of current situation with RBS they were to capitalise it now.

the good news is bank have no objection to capitalise it into long term lone.

Just to confirm if converting it into unsecured long term interest free loan is there any details to be taken care of?? i.e. report it to companies house etc??

Also any stamp duty to be paid and how much if converted into preference share?

thanks

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By Anonymous
10th Mar 2009 12:56

Options
Don't really understand your preamble on the company formation - I am assuming you mean the company has an authorised share capital of 2,000 £1 shares with 1 £1 share in issue.

If the bank have asked him to capitalise the loan it is unlikely that they will see swapping one type of unsecured debt for another as being acceptable.

Conversion into preference shares or ordinary shares would both qualify as capitalisation, but as we don't know the full circumstances or future prospects/plans it's difficult to say which. Don't forget that stamp duty will be payable on the conversion.

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