My husband dies last year and was sole shareholder in his limited company. In 2015 his brother lent the compnay 500K as a directors loan which still sits on the accounts. When my husband died, i became sole director and shareholder, my brother in law resigned as a director. The business is still running. What happens to his directors loan? There are no written terms, just the bank trail showing the oney going into the company. The estate has a gross value of 315K and a net value of nil.
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The company is still indebted to your brother in law. If there is any acrimony about this you need a solicitor, not an accountant.
The company is its own legal entity, so nothing happens to it legally in terms of to whom it may owe what with the passing of your late husband.
All that happens is the estate of your late husband (or whoever is directed under the will) becomes the shareholder.
You should probably discuss the matter with your company accountants, and if there are disputes if you have a lawyer dealing with the probate they would be my first port of call.
Edtied to add, posted at same time as the above which is somewhat more succinct.
The value of your husband's estate is irrelevant. He didn't owe his brother the money.
Any claim from the brother is against the company.
Agree ... if "his brother lent the company 500K as a directors loan" means that brother was a Director (to whom the company still owes the value of the loan - possibly plus interest or whatever the terms state).
If, on the other hand, his brother lent the money to the now deceased husband (who then invested or loaned money to the company), then ...
The OP says that her BiL resigned as a director, so it's one of those occasions where face value is probably accurate.
Thanks ... somehow missed that bit (and I've no longer got the excuse of excessive heat as a contributory factor)!
Sorry to hear of your loss. As others have said it is the company that owes the loan to your brother-in-law, not the Estate. I am not sure what the legal position would be if the brother-in-law wanted immediate repayment and the company didn't have the money - it may make it immediately insolvent and have to stop trading.
Thankyou for this. So, the company had debts of around 50K which i paid personally. It costs me 1K pcm to keep going in terms of loans and Indemnity insurance. I keep going as there is a building project that will run for 4 years and which i receive an annual fee note if the milestones are hit. It seems unfair that new business done after he resigned and after I have put in all the running money, that he could call in a loan.
Thankyou
so a value of nil as i had to go out in search of new jv partner and invest to retain the opportunity he had started to negotiate.
Hi
Sorry, I’ve missed the point. There were outstanding rental arrears and contractor bills for 50K. There was no mention of the d loan being called in for many years before he died. My husband also had a d loan of 300K which I inherit. Thanks again
Your talking big numbers what did your accountant advise before you loaned the company a further £50k and commited yourself to a further £1k per month for 4 years? Presumably the reward from the project is greater than this and it was necessary to use the existing company rather than open a new one.
You also mention that you had to find a new JV I'm assuming that you brought in a partner. If so how much did they invest and what is their reward.
Have they costed out the future profits v the loans - £850k especially the ex directors loan of £500k if he called it in? Can the company afford to repay it at short notice? Do you have a plan B if the loan is called in?
You may have room to negotiate if the ex director asked for his money back (ie) pay in instalments. His only other choice is to go down the court route and possible winding up of the company.
This is so helpful, thankyou.
I just did it as yes there is likely to be value coming out of said project, in the region of 250K over next three years. I have another company and was considering whether i should move it into here? My JV partner does the work my husband would have done and I pay him 50%. He invoices me from his company, as opposed to having become part of my company, and so the liabilities.
The risk you have if you think you will receive £250k from the project is that the ex director will ask for his loan back and you will be left with nothing. You need to contact your accountant as a start point they know your circumstances and whether moving the business to your company is an option. They may also advise speaking to a solicitor for a view on whether moving the business is feasible and whether the ex director could have legal recourse.