TESTING TIMES AHEAD

By Tim Corfield

“My company has just received a £50,000 Bounce Back Loan. My 5 staff are furloughed. There aren’t any assets or liabilities (other than £25,000 due as directors dividend/directors’ loan account). I’m not sure when or whether I’m going to start trading again. Can I draw the £25,000 that the company owes me?”

No. 

The fact that there is a loan liability of £50,000 a liability to the director of £25,000 only represented by an asset of £50,000 at the bank makes the company insolvent. 

“But what about the suspension of the wrongful trade provisions and the fact that there is no personal liability to a director in respect of a Bounce Back Loan?”

These aren’t relevant, in these circumstances. Assuming there is a fair chance that the company will end up in liquidation (either a creditors’ voluntary (actioned by the directors) or compulsory (actioned by the creditors – which could be the bank or the employees) the liquidator would look to challenge this transaction.

The transaction would be challenged as a preference, misfeasance or breach of fiduciary duty, as a start! The law assumes a preference when it is to a director. In the first instance the liquidator would request the director to repay the monies. Should the director decline to pay the matter would progress to court and any order would include a considerable amount for costs. 

“Ok, so what should I do?”

These are testing times indeed. It’s so important for directors to take advice. Even if the advice isn’t exactly what they want to hear to start with. Things are difficult enough at the moment without storing up bigger problems for the future.

We’ll work with the directors to put together a plan of action. Call me (077869 65009), at any time, for a chat. We’re here to help.

Tim Corfield