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How does a directors loan work in a CIC?

A transfer of assets from a partnership has created a directors loan in a CIC

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A partnership converted to a CIC with the partnership assets being transferred into the CIC creating  a directors loan liability on the balance sheet.

The CIC is asset locked but does this prevent the directors loan being paid off? Otherwise if not, the liability surely not a liability. Was this the correct accounting treatment at the time of transfer? Should it have been paid off gradually like a standard directors loan?

A director of the CIC whose loan it was has passed away; they were working in the business until their death. My inclination is that it’s payable to the estate. Has anyone else had experience of this?




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By stepurhan
12th Mar 2019 16:37

Did you not take advice on these matters before converting to a CIC? Untangling a situation after the act is usually a lot more complicated than addressing it beforehand.

That said, in this case I cannot see why the loan cannot simply be repaid. The asset lock only prevents the transfer of CIC assets at anything less than market value, except under very specific circumstances. It does not prevent the repayment of what is presumably a legitimate debt.

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Replying to stepurhan:
By MarieFift
12th Mar 2019 19:01

Unfortunately I wasn’t involved at that time. I don’t think the mechanics of it was understood.

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By WhichTyler
12th Mar 2019 17:45

Was there an agreement in place to transfer the assets and pay for them?

As step says, easier to plan than remedy...

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Replying to WhichTyler:
By MarieFift
12th Mar 2019 19:02

At the time I don’t think it was thought about.

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