Dispute at Pillings

[Alan de Enfield]

Mike the Boilerman, on 29 Jan 2014 - 10:03 PM, said:

Just a point, back in the day it was not unusual for directors of a start-up to lend their company cash from their own resources as part of the funding arrangements. These loans to the company are known as 'Directors' Loan Accounts'.

 

I'm just wondering if PL lent the new company this £30k, not the other way around, and people have read the label "Directors' Loan Account" on the balance sheet and made a wrong assumption.

 

 

MtB

 

Very pleasing to hear. Thank you.

 

MtB

 

Excellent suggestion - we did as you mention 'lend' our own company all of its capital to buy the land and buildings.

 

We had two "Directors Loan Accounts" showing in the accounts - one on the 'income side' showing what we had loaned the company, and one on the 'expenditure' side showing the repayments the company was making back to us.

Edited January 29, 2014 by Alan de Enfield

[LoneWolf]

Just a point, back in the day it was not unusual for directors of a start-up to lend their company cash from their own resources as part of the funding arrangements. These loans to the company are known as 'Directors' Loan Accounts'.

 

I'm just wondering if PL lent the new company this £30k, not the other way around, and people have read the label "Directors' Loan Account" on the balance sheet and made a wrong assumption.

 

 

 

Technically all (non salary/dividend) payments to and from directors are recorded in the DLA. If the director owes the company money it is referred to as an 'overdrawn DLA'

It should be disclosed in the accounts which should make it clear which way round the loan is

 

This is not illegal btw - it isn't even unusual

 

 

but yes you're right MtB, people often confuse accounts being in Debit or Credit because bank statements used to show a little Dr or Cr which was from their point of view not yours

if you see what i mean

[mark99]

 

How does that work then?

 

Spouses being partners in a business might, but I can't see how two directors being married or partners helps with tax.

 

MtB

Deleted after reading and my reply was veering offtopic

Edited January 29, 2014 by mark99

[Geoff Taylor]

 

Slightly off topic but HMRC is not, since 2003, a preferential creditor...

 

36A.61 HM Revenue and Customs not a preferential creditor

Following the implementation of EA2002 HM Revenue and Customs (HMRC) is not a preferential creditor and its debt(s) (irrespective of the nature of the tax owed), will rank with all other unsecured creditors

http://www.insolvencydirect.bis.gov.uk/technicalmanual/Ch25-36/Chapter%2036A/Part%205/Part%205.htm

 

I stand corrected as my experiences were prior to 2003(they must have softened up!!)

[carpet wallah]

Slightly off topic but HMRC is not, since 2003, a preferential creditor...

 

36A.61 HM Revenue and Customs not a preferential creditor

Following the implementation of EA2002 HM Revenue and Customs (HMRC) is not a preferential creditor and its debt(s) (irrespective of the nature of the tax owed), will rank with all other unsecured creditors

 

http://www.insolvencydirect.bis.gov.uk/technicalmanual/Ch25-36/Chapter%2036A/Part%205/Part%205.htm

I stand corrected as my experiences were prior to 2003(they must have softened up!!)

Thank you, I didn't know that either.

 

It also appears that they've softened up on the arrangements about overdrawn DLA's, which are permissible now if you follow the rules. (as others have stated)

 

Mind you, if a loan to a director is from an insolvent company, the liquidator should pursue the director personally for repayment, to the benefit of the creditors.

[Grace and Favour]

 

Thank you, I didn't know that either.

 

It also appears that they've softened up on the arrangements about overdrawn DLA's, which are permissible now if you follow the rules. (as others have stated)

 

Mind you, if a loan to a director is from an insolvent company, the liquidator should pursue the director personally for repayment, to the benefit of the creditors.

Absolutely - for, (I believe) apart from anything else, he will have been misrepresenting the fiscal status of the company (knowing that it was insolvent and unable to sustain the loan)

[boathunter]

I used a directors loan account for 20 years to grab cash while putting off paying tax. Quite normal.

[Stilllearning]

Just looked at the ABNB site, and see that they still have a leasehold parking/mooring space for sale. Do you think they know what is going on ?

[carpet wallah]

I used a directors loan account for 20 years to grab cash while putting off paying tax. Quite normal.

My recollection is that, prior to the 2006 Companies Act, that there was a general prohibition on loans to directors, except in certain specific situations. Not that it didn't happen, though.

[LoneWolf]

My recollection is that, prior to the 2006 Companies Act, that there was a general prohibition on loans to directors, except in certain specific situations. Not that it didn't happen, though.

 

yes, there was.

Back in the days when i did this sort of stuff if the DLA was overdrawn when you did the accounts it was cleared by declaring a dividend if there were sufficient profits & the director was a shareholder (which they always were) or the director got paid a bonus via PAYE

 

And you told the directors off of course

[Phantasm]

Just a point, back in the day it was not unusual for directors of a start-up to lend their company cash from their own resources as part of the funding arrangements. These loans to the company are known as 'Directors' Loan Accounts'.

 

I'm just wondering if PL lent the new company this £30k, not the other way around, and people have read the label "Directors' Loan Account" on the balance sheet and made a wrong assumption.

 

 

MtB

 

Very pleasing to hear. Thank you.

 

MtB

Just to clarify my information, the company accounts ending 2008 state " During the year P Lillie, a director, received an interest free loan which was repaid during the year. The maximum amount outstanding was £30,787" I have never said that what he did was fraudulent or illegal, only that it was immoral to take a loan from monies invested by other people to develop the marina, without informing them, for his own personal use. No leaseholders were told of this loan and it was only discovered by looking at the accounts.

[MtB]

Just to clarify my information, the company accounts ending 2008 state " During the year P Lillie, a director, received an interest free loan which was repaid during the year. The maximum amount outstanding was £30,787" I have never said that what he did was fraudulent or illegal, only that it was immoral to take a loan from monies invested by other people to develop the marina, without informing them, for his own personal use. No leaseholders were told of this loan and it was only discovered by looking at the accounts.

 

You've got me there. It's no business of the leaseholders as far as I can see. All they've done is buy themselves the lease on a car parking space in order to get a free mooring. They are not investing in the company in any normal sense of the word.

 

MtB

[carpet wallah]

yes, there was.

Back in the days when i did this sort of stuff if the DLA was overdrawn when you did the accounts it was cleared by declaring a dividend if there were sufficient profits & the director was a shareholder (which they always were) or the director got paid a bonus via PAYE

 

And you told the directors off of course

 

Were there norty steps in those days?

[Midnight Rider]

 

You've got me there. It's no business of the leaseholders as far as I can see. All they've done is buy themselves the lease on a car parking space in order to get a free mooring. They are not investing in the company in any normal sense of the word.

 

MtB

It ain't a 'free mooring', the lease states that it's a 'car parking space with associated mooring rights'.

[Phantasm]

 

You've got me there. It's no business of the leaseholders as far as I can see. All they've done is buy themselves the lease on a car parking space in order to get a free mooring. They are not investing in the company in any normal sense of the word.

 

MtB

Agree completely regarding there being no legal requirement to inform the leaseholders how the money is spent, but they thought they were investing their hard-earned money to facilitate the development of the marina not fund the directors lifestyle.

[George94]

Just to clarify my information, the company accounts ending 2008 state " During the year P Lillie, a director, received an interest free loan which was repaid during the year. The maximum amount outstanding was £30,787" I have never said that what he did was fraudulent or illegal, only that it was immoral to take a loan from monies invested by other people to develop the marina, without informing them, for his own personal use. No leaseholders were told of this loan and it was only discovered by looking at the accounts.

 

Not immoral at all.

[DeanS]

At the creditors meeting on the 3Feb, surely not all 300 boaters attend? How does it work?

[carlt]

No I mean which brokers have you actually had success using this method with.

Every broker I've ever bought a boat from.

 

I have no intention of naming businesses as I believe every transaction is a private negotiation and I wouldn't want anyone using my experience as leverage.

 

I would recommend just applying your own negotiating skills, the worst they can do is say no.

[Athy]

what a PE teacher knows about running a company is beyond me.

[quote

 

 

 

 

He should know quite a lot about running.

 

It occurs to me: if moorers at this marina paid for a parking space, not a mooring, what happened when somebody who did not have a car wanted a mooring there?

Edited January 30, 2014 by Athy

[boathunter]

My recollection is that, prior to the 2006 Companies Act, that there was a general prohibition on loans to directors, except in certain specific situations. Not that it didn't happen, though.

How would anyone know? Accounts weren't fully audited. It was advance payment of dividends in the form of a loan. Technically ACT should have been paid at the time I think but I just rounded it all up and paid on 31st Dec. Running a ltd co opens up many wheezes such as paying your partner do do very little to use up tax allowances/qualify for NI without paying any. It goes on and on. In a year I made £100K profit I doubt I got into 5 figures of tax - all perfectly legal.

Edited January 30, 2014 by boathunter

[LoneWolf]

Were there norty steps in those days?

 

It wasn't 'naughty' - there wasn't much else an accountant could do as there were no time machines to allow us to go back and stop the directors withdrawing too much. Naughty would have been backdating the dividend paperwork which we didn't do

 

or did you mean the directors? most of the ones that overdrew (is that a word?) considered any money in the company as 'theirs' and seemed to have trouble getting their heads round the veil of incorporation

[johnlillie]

Apologies for being personnel why would Steadman take over the loan that was the responsibility of your son who was the nenificiary of the shares. Was this loan repaid or are you still a creditor?

 

Apologies for being personnel why would Steadman take over the loan that was the responsibility of your son who was the nenificiary of the shares. Was this loan repaid or are you still a creditor?

no, when Steadman paid us off, we got our money back that we put in (though we got nothing for our shares), so that meant Steadman had put in his original £400k plus our £330k, he then "sold" paul 16.3% shares, and loaned him the £130k to buy them, if you se what I mean.

Just a point, back in the day it was not unusual for directors of a start-up to lend their company cash from their own resources as part of the funding arrangements. These loans to the company are known as 'Directors' Loan Accounts'.

 

I'm just wondering if PL lent the new company this £30k, not the other way around, and people have read the label "Directors' Loan Account" on the balance sheet and made a wrong assumption.

 

 

MtB

 

Very pleasing to hear. Thank you.

 

MtB

from what I remember, paul was never ever in a position to lend anyone anything, quite the contrary

[junior]

Just looked at the ABNB site, and see that they still have a leasehold parking/mooring space for sale. Do you think they know what is going on ?

 

Quite a lot of the boats listed on ABNB brokerage's website are listed as being at pillings Lock Marina. I guess they have some sort of arrangment and you'd like to hope they know what's going on!

[Alan de Enfield]

johnlillie, on 30 Jan 2014 - 09:05 AM, said:

 

no, when Steadman paid us off, we got our money back that we put in (though we got nothing for our shares), so that meant Steadman had put in his original £400k plus our £330k, he then "sold" paul 16.3% shares, and loaned him the £130k to buy them, if you se what I mean.

 

 

Shares work out at £7900 each

 

I wonder if that would be the £790k that are shown as assets in QMH (not QMP) accounts

[carpet wallah]

How would anyone know? Accounts weren't fully audited. It was advance payment of dividends in the form of a loan. Technically ACT should have been paid at the time I think but I just rounded it all up and paid on 31st Dec. Running a ltd co opens up many wheezes such as paying your partner do do very little to use up tax allowances/qualify for NI without paying any. It goes on and on. In a year I made £100K profit I doubt I got into 5 figures of tax - all perfectly legal.

I know lots of people did it, I'm just saying overdrawn DLAs weren't "allowed" until the new Act. Obviously, if the money is turned into dividends or bonuses at the end of the year, then there's no net effect. I assume the rule was there in case of insolvency, a director turning up at the creditors' meeting with an illegal debt to the company wouldn't have been popular.

 

It wasn't 'naughty' - there wasn't much else an accountant could do as there were no time machines to allow us to go back and stop the directors withdrawing too much. Naughty would have been backdating the dividend paperwork which we didn't do

 

or did you mean the directors? most of the ones that overdrew (is that a word?) considered any money in the company as 'theirs' and seemed to have trouble getting their heads round the veil of incorporation

So sorry LoneWolf, of course I was referring to the directors.

 

I agree with you. I have come to the realisation, after far too many years in business, that in a large proportion of SME's, the proprietors are people who are passionate about their particular trade first and the "business of doing business" properly comes a poor second.