My debt or my limited company's debt?

[speedy_gonzales]

Hi all,

 

I have had a look through all the various forums and sub forums and decided to place my post here as there seems to be nothing totally related to business debts for limited companies. If the moderators feel this post is in the wrong section, then please feel free to move it.

 

OK. My question is this. I am being taken to court (small claims) for a debt of just over £3000. This debt was incurred to a company which I was originally setting up. It was a private limited company with myself as director. The money was loaned to me by a friend and knew exactly what the loan was being used for specifically, and where the money was going, ie into my company bank account. There is a paper trail to prove the transfers and movement of the money from account to account as at the time of the initial loan, the company account was in the process of being set up.

 

Unfortuntely, I became one of the statistics of new start companies and ended up going under. Although not in adminsitration, I have not traded the company for many months.

 

My question is, under the way that debt is dealt with when dealing with a limited company, can this person take me to small claims, and if they can, what is the likely outcome? I have not disputed the claim on the forms, but have specifically said on them that the debt is one of the limited company's debts and not mine personally (which is how it has been stated on the plaintiffs form). I would also like to know if a loan agreement of any kind, be it personal or otherwise has to have a purpose or description of goods incorporated into it.

 

Any advice would be gratefully received.

Edited September 15, 2012 by speedy_gonzales

[Still_surviving]

If the money was loaned to you and you then introduced the money into the company I would say (as an accountant) that the loan was a private transaction, not a company one. It was your choice to then put the money into the company via your directors loan account.

 

If you have any paperwork to the contrary proving they lent the money to the company, then that would negate my argument, otherwise you would have to prove to a judge that the claimant knew exactly where the money was going and why. Even then, I think you are on a sticky wicket if you dont have paperwork with the company's name on it.

[marmaris30]

If this person knowingly made a loan to your company and you have an agreement that proves this, then you would not normally be liable personally for your company's debts. There is no need for any link to goods or a specific purpose. However your friend might try to claim that the company, being dormant, has no prospect of paying it back and that you have acted recklessly as a director in allowing this to happen. If you have exercised your directorial responsibilities to the best of your ability then this should not be too much of a risk.

 

However if your company has a debt or debts it cannot service then it is insolvent and it is really your responsibility to wind it up, because otherwise a creditor can present a winding-up petition to a court and have it put into administration. Then the Official Receiver would become involved, who would not look on you favourably for having failed to address the problem earlier. Perhaps you should speak to a solicitor about both matters.

[speedy_gonzales]

If the money was loaned to you and you then introduced the money into the company I would say (as an accountant) that the loan was a private transaction, not a company one. It was your choice to then put the money into the company via your directors loan account.

 

If you have any paperwork to the contrary proving they lent the money to the company, then that would negate my argument, otherwise you would have to prove to a judge that the claimant knew exactly where the money was going and why. Even then, I think you are on a sticky wicket if you dont have paperwork with the company's name on it.

 

This person lending me the money knew EXACTLY where the money was going and for what purpose. I think it prudent to add that the Plaintiff has actually stated on her initial court form that it was a business loan.

[speedy_gonzales]

If you have exercised your directorial responsibilities to the best of your ability then this should not be too much of a risk.

 

 

I have acted according to my responsibilites as a Director, and ceased trading as soon as I knew things were going pearshaped. I have been waiting for one of the biggest creditors to wind the company up, as they agreed in principle to do so.

[Still_surviving]

This person lending me the money knew EXACTLY where the money was going and for what purpose.

 

My point is/was - can you prove this with an agreement bearing the company's name? If you cant ie no paperwork, or paperwork in your name, it will be down to the judge lottery if it gets to court, and I still think the odds would be against you.

[speedy_gonzales]

My point is/was - can you prove this with an agreement bearing the company's name? If you cant ie no paperwork, or paperwork in your name, it will be down to the judge lottery if it gets to court, and I still think the odds would be against you.

 

Unfortunately not. Surely if this person has stated in their opening gambit on the court forms that they knew it was for a business purpose, surely this is good enough? They have admitted already they knew of the purpose.?

[Still_surviving]

Unfortunately not. Surely if this person has stated in their opening gambit on the court forms that they knew it was for a business purpose, surely this is good enough? They have admitted already they knew of the purpose.?

 

If they have said this on their claim form, then the waters are getting a little murkier. However, 'business purposes' is not a definite knowledge that they intended to lend to a limited company, and its the 'limited' bit that is so important. I would suggest trying to find a legal brain on this site who could perhaps look at their claim form, or failing that, see a solicitor.

 

At the moment, I stand by my original post, but thats as an accountant, not a solicitor.

[speedy_gonzales]

Thanks Still_surviving, your posting has been of help already.

[marmaris30]

Well since it looks like you've fulfilled your directorial responsibilities as far as you can, and you apparently have evidence that the loan was made directly to the company, then your defence can be that you are not personally liable, as this money was never in your possession and was knowingly lent to a company. You could ask for your claim to be struck out as manifestly invalid, although a skeleton defence explaining the facts and supporting evidence available would look better. If you get a solicitor to advise you and draft the defence then it should be solid, although you'd have to pay for that of course and in small claims, applications for costs are very limited.

[Still_surviving]

The problem you have is this....

 

He/she could say "Mr.Gomzales told me he was going into business and I thought it was a good prospect so agreed to lend him £3000. I then found he put the money into a limited company and is trying to avoid repayment as the company has gone bust".

 

I think on that scenario, you would lose, in the absence of any paperwork showing intent to lend to the company direct....however as I said - find a better legal brain than mine

[Still_surviving]

marmaris

 

With respect, a loan made for 'business purposes' does not show it was intended to go into the company. The guy could have thought he was self-employed

[marmaris30]

As an aside, I wouldn't lend money to a company without security, either over assets or a personal guarantee. If he had actually lent it to you personally to help the business then it would be a completely different matter, but evidently he didn't. That your friend is less cautious is his problem.

[speedy_gonzales]

The problem you have is this....

 

He/she could say "Mr.Gomzales told me he was going into business and I thought it was a good prospect so agreed to lend him £3000. I then found he put the money into a limited company and is trying to avoid repayment as the company has gone bust".

 

I think on that scenario, you would lose, in the absence of any paperwork showing intent to lend to the company direct....however as I said - find a better legal brain than mine

 

This person lending to me knew exactly to the letter where the loan was going to and for the exact purpose of disposal of the funds through the business. Surely that is fairly clearcut?

[marmaris30]

Still_surviving, point taken. Although unless the lender was particularly unaware of the distinction between individuals and companies, or there was a deliberate attempt to mislead, there doesn't seem to be any implication of self-employment. As long as any money taken out of the company by the shareholders (presumably the OP) was reasonable under the circumstances, and any loans to directors were repaid in full, and especially if there were any staff then that would put any such allusions to bed.

 

If the company was a tax shelter for self-employment then that would be a different matter, but the OP does not suggest it was.

[speedy_gonzales]

marmaris

 

With respect, a loan made for 'business purposes' does not show it was intended to go into the company. The guy could have thought he was self-employed

 

 

The lender knew it was being used by a limited company (private)

[speedy_gonzales]

Still_surviving, point taken. Although unless the lender was particularly unaware of the distinction between individuals and companies, or there was a deliberate attempt to mislead, there doesn't seem to be any implication of self-employment. As long as any money taken out of the company by the shareholders (presumably the OP) was reasonable under the circumstances, and any loans to directors were repaid in full, and especially if there were any staff then that would put any such allusions to bed.

 

If the company was a tax shelter for self-employment then that would be a different matter, but the OP does not suggest it was.

 

 

The lender had access and copies of the certificate of incorporation of the limited company so knew full well that it was for a limited companys useage and not that of someone merely self employed. No misleading of the lender was carried out, however, I feel the lender is just miffed now that they cannot get their money back through the normal channels now the company has ceased trading.

[Still_surviving]

The lender had access and copies of the certificate of incorporation of the limited company so knew full well that it was for a limited companys useage and not that of someone merely self employed. No misleading of the lender was carried out, however, I feel the lender is just miffed now that they cannot get their money back through the normal channels now the company has ceased trading.

 

Okay...but prove it.

 

"Follow the money" is often a phrase used in times of litigation. From what you have said the money went to you first, so that imho could be your undoing.

 

I dont want to get your hopes up, so perhaps Im being pessimistic - but if the claimant has a half decent legal brain/solicitor they will go down the lines I have stated.

Edited September 15, 2012 by Still_surviving

[speedy_gonzales]

Yes I understand the burden of proof thing here. But my point is, if they KNEW categorically and have admitted it in their opening gambit to the court office, surely this is THEIR undoing? I am not trying to shirk debt here, despite what it may seem, however, I am merely trying to impress on the lender that they knew what the funds were for, where they were going, who, ultimately would be "using" them etc. I have had a few creditors on my case lately as the company left a few debts, but all of them have agreed that once the company is "administered" offically, then the debts would only be paid out if the company had assets/funds remaining (which it doesnt).

[Still_surviving]

You say they "have admitted it in their opening gambit to the court office"

 

Saying they knew the loan was for business purposes is not the same as admitting it was their intent to lend to a limited company. However the wording of the claim form is important imho.

 

Might i suggest you flag a moderator, and get this thread moved to the 'legal issues' section where perhaps you will get some more finite advice if you upload the form N1

[speedy_gonzales]

Being new to the forum, how do I "flag" a moderator please? Also, I thank you sincerely for your responses to my questions.

[Still_surviving]

Erm...good question.

 

Ive reported your last post (using the triangular icon) together with a comment, so hopefully a mod will sort this if they think its appropriate

[cerberusalert]

Thread moved into the legal forum.

[speedy_gonzales]

Many thanks