Director Loans Company £200,000

Joe Grimmond, director of Coral Products Plc, has loaned the company £200,000 following the administration of one of its key clients.

The loan will accrue interest of 5% per year and is secured against subsidiary company Interpack, a manufacturer of food and chemical containers.

It has been reported that the loan will be used alongside existing lending from the bank to bridge a short term funding gap in the company which has been brought on by the demise of The Video Duplicating Company Ltd (VDC). VDC collapsed into administration in late December last year and was a major purchaser of DVD and CD boxes from Coral Products Plc.

News of the directors loan comes at the same time as the projected losses arising from VDC’s administration by Coral Products Plc has been downsized from £500,000 to £300,000. This reduction in losses could be one of the reasons why the director has decided to go ahead with the risk and put his own money into the company.

Limited cashflow is a common reason for directors to advance money to a company. Provided that the company is able to repay the loan, it is a transaction which is mutually beneficial for both the director and the company; as it gives the company the cash needed to continue to trade whilst providing the director with a good rate of return on the loan amount.

However, providing a loan to a company is not without risk. Directors should ensure that they have adequate security in place as protection in the event the company struggles to pay its debts as they fall due. If the loan is provided to the company without any security, the director will rank as an unsecured creditor of the company, putting it behind any other secured creditors. Repayment provisions should also be agreed and put in writing in the form of a directors’ loan agreement.

Forbes’ regularly act for directors in putting together suitable loan agreements and security in respect of lending to companies. For further advice and assistance in relation to directors loans or other agreements of this nature, please contact Pauline Rigby in the Business Law Department on 0800 037 4628 or send us an enquiry via our contact form.

Pauline Rigby

About Pauline Rigby

Pauline Rigby is Head of the Corporate and Restructuring team at Forbes Solicitors. Pauline’s blogs cover a wide range of corporate issues, specifically areas including company formation, banking, joint ventures and shareholder matters, contractual matters and equity fundraising or investing.

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