In-credit, directors loan account (loaner died). Company refuses to pay back.

[Br1an]

Hello,

My mother died three months ago and had 20% shares in a business which she had also contributed a directors loan of £200,000 (credit balance).

The problem lies that the business partners (one 45%, the other 35%) in which she held 20% shares in, don't want to settle the o/s directors loan account and have been pleading poverty.

The business operates with three vehicles (local signwriting) and a small office (valued at £200k at a guess - which the business owns outright).

I'm at a loss as to what options are available.

What rights or options do I have in this scenario?

All I want is to get the directors loan account settled and for the shares to be bought back at their current market value.

Any advice appreciated.

Brian C.

[Jessica@WhiteFieldTax]

In sorry to hear about your mothers death.

I'm assuming you are executor. Otherwise I think you have very few rights as your mothers estate now vests in executor.

You need to ascertain if there is any

(A) shareholders agreement
(B) written agreement on the loans term (a verbal agreement is perfectly acceptable, but difficult to evidence so not helpful)

These documents should clarify agreement between the shareholders.

In their absence the default provision around shares will come from the Articles of Association. I don't know off hand what model articles (what used to be table A) would provide and, of course they could have been modified, but I would expect there is no obligation on existing shareholders to buy your late mothers share back, and no restriction in your selling them elsewhere. But you need to check this.

You would need to take advice from a commercial litigation lawyer around the loan. In the absense of any agreement to the contrary it's probably repayable on demand but you would be brave to try and enforce that through the courts as a judge could easily be persuaded that there was an implied longevity to the loan given the company balance sheet (from details provided), and it may be deferred or a breakup of the company forced with fire sale asset values.

[slice16]

Hi Brian,

Sorry to hear about your loss.

I would highly recommend you get in touch with a Solicitor who specialises in Wills and Probate. From my personal experience (I was the executor to my fathers estate the other year), then both the shares and loan credit account should become the property of your mothers estate.

I would also imagine the shares could either be bought back, or the estate could carry on claiming any dividends that are issued.

Therefore, any money owed should be collected and would then be used to pay of any creditors and anything left would be distruted as per your mothers Will.

Again, I would highly recommend getting in touch with a Solicitor to deal with this sort of thing.