Splitting the debt after liquidation

M

markod

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I own 50% of a ltd company and a business partner owns the other 50%. We have traded well over the past few years but due to the downturn I can foresee us going into liquidation in the coming months.

Our only debt is a €50K stock loan and the balance of two vehicle leases. However, all of this debt is personally guaranteed by us both.

My worry is that if we do go into liquidation and my colleague claims he can't pay, I will be left to repay the debt alone.

Does anyone know if it's possible to setup a legal agreement between us both stating that if the monies are due then each party must cough up half?

I realise that any such agreement won't matter to the bank - they just want their money whichever way it comes. However, it might give me some security that my colleague will at least be forced to try and repay the debt, rather than just walk away.

Any advice gratefully received.
 
Hi,
I have an article on insolvency,winding up and members voluntary winding up on businessandlegal.ie

What you are proposing is not a good idea as there are many rules re fraudulent preference etc. which may kick in if either director tried to prefer one creditor over another within 12 months of winding up.

You should speak to your accountant or solicitor as if the action you propose goes wrong then you may regret it in the future if you were restricted or disqualified as a director.I hasten to add that I do not have enough info to even suggest to you that this might happen but it could get messy if a liquidator was to slavishly follow the Companies Acts.

Hasten slowly and take professional advice is my advice to you.
 
in my experience the bank will try to get paid by whoever they think can/will pay so be very careful.Is there any reason why you think your partner will not pay his/her share
 
Only a suspicion at the moment. I just want to make sure that he shares the debt burden fairly and doesn't wash his hands of it should we go into liquidation.
 
I understand your quandry and would suggest getting something in writing that may avoid expensive legal action being required later.
As an aside and I know we all make mistakes it is important to know who you are going to sleep with (in a business sense!).
 
As you think the business will last for the next few months try to reduce your debt to the bank so your personal guarantees are as low as possible
 
This is one of the first things that a liquidator is obliged to look at when undertaking a liquidation. By reducing the bank debt you are artifically treating yourself as a preferential creditor. Thread carefully!
 
if the liquidator can show preference there may be a problem but the support of the bank could be seen as critical to the future of the company a demand from them to reduce the borrowings could force the directors to reduce the borrowings thereby letting the company continue to trade,there would of course be the question is the business solvent or is it trading in a reckless manner its not black and white so thread carefully but try to protect your own interests as well.
 
Thanks for all the comments. All food for thought. Hopefully the situation will not arise, but I'll get some professional advice just in case. Thanks again.
 
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