Can a Directors Loan be transferred to another person on sale of shares?
Whilst this may be a little complicated it is all 100% true. However, all names are fictitious to protect all concerned.
I will attempt to break this down into a timeline to try to make it clearer.
2000 Man 1, Man 2 & Man 3 are all management employees of a company named Joe Bloggs Manufacturing. Joe Bloggs is owned by Mr Joe Bloggs.
2008 Joe Bloggs Manufacturing starts to struggle financially and Mr Joe Bloggs asks members of staff management if they would like to invest in the company (to keep it afloat) in exchange for shares and Director positions etc. So, Man 1, Man 2 & Man 3 all invest in the company and take a 20% share each. The money Man 1, 2 & 3 invested went straight into the company bank account to keep it afloat and on side with the bank. That now leaves the share allocation as possible :
Mr Joe Bloggs (40%) Now resigns as a Director but stays as a shareholder.
Man 1 20% Now converted from a member of management to a company Director.
Man 2 20% Now converted from a member of management to a company Director.
Man 3 20% Now converted from a member of management to a company Director.
It is decided that the 3 new directors will run the company under their rules and Mr Joe Bloggs will make no company decisions. The only proviso (and one of the things agreed by all in the deal at the time) is that Mr Joe Bloggs is allowed to take £1,000 per month out of an EXISTING £100,000 directors loan that was still owed to him at this time. Everyone agrees on this and the company plods on for the next few years paying Mr Joe Bloggs his £1,000 directors loan payback amount. In the accounts that £1,000 is referred to as 'Consultation'...Ie...The company is paying him £1,000 per month for his 'advice'
So, we come to early 2020 (the company is doing great) and Mr Joe Bloggs approaches Man 1, 2 & 3 and asks them if they want to buy his remaining (40%) share for £150,000 between the 3 of them. Man 1 & Man 2 jump at the chance. Man 3 declines. So, it goes that Man 1 & Man 2 will now each pay £75,000 for 20% of shares and Mr Joe Bloggs will walk away forever. So, we get a solicitor to draw up the deal. One of the clauses in the deal states:
The sale and purchase of the shares will be in total satisfaction of all, or any claims whatever nature, the Vendors may have against the parties hereto including any liabilities or obligations remaining from the agreement between the parties of 3rd July 2008, none of which are admitted hereby.
So, Mr Joe Bloggs is agreeing to sell his 40% to Man 1 & 2 for £150,000 and all is cool. Mr Joe Bloggs wants to disappear into the sunset. All good. But...What now happens to that existing amount remaining of Mr Joe Bloggs ORIGINAL directors loan? Remember...the company was paying him back at £1,000 per month but he has only taken 56 payments of £1,000 since the original deal. Indeed (out of the original £100,000 ORIGINAL directors loan) there is still £44,000 that is till owed (technically) to Mr Joe Bloggs. So, as you can see... Of the £100,000 that was owed to Mr Joe Bloggs, £56,000 has been paid back to him. There's still £44,000 sat somewhere and in a nutshell our question is this...
Can Man 1 and Man 2 now take ownership of this directors loan? Ie...Does the company now owe Man 1 & Man 2 this remaining £44,000?
I hope I haven't confused things too much. I just wanted to be as clear as possible. The company does have a proper accountant who is up to date with all legislation but 1, I sometimes think they just fob us off if they are too busy and 2. They charge an arm and a leg for 'Extra' advice not part of our own accounting system. I am as keen now as I ever was to ensure that this money does not get lost to the government. After all, neither of us has received any amounts of our company monthly dividend payments that we take as a salary.
Thanks in Advance all.