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
Replies (6)
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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!!
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.
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.