Transferring Peronsal Debt into Company

Ned Stark

Registered User
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8
Hi,

Does anyone know if there is a way of transferring personal debt into a company? An asset that was transferred into Company last year having previously been owned personally and rented to the company was correctly conveyed across into the company and stamp duty paid. The problem was however was that the debt amount that went from personal to the company as part of this transfer was less than the asset value as this was the remaining debt on this particular loan facility.

If there are sufficient reserves in the company, is there a way of transferring more debt into the company by way of perhaps a share buy back? All of the debt is related to the company but held personally. It would be hugely beneficial to have more debt in the company versus personal as have to pay tax before paying loans held personally.

Thanks
 
From an accounting perspective, the easiest way to "transfer" personal debt into a company is for the company to "pay" your personal creditor on your behalf. Your creditor may not accept the payment, as under certain circumstances a liquidator could recover the payment from your personal creditor.

Such transactions are extensively covered by legislation etc. You should have had a formal Board Meeting to do it. If your loan account is in excess of 10% of the company's net assets you would be breaking companies acts legislation with other possible ramifications e.g. being personally held liable for all liabilities of the company if your loan caused the company's collapse. You would also suffer taxable Benefit-in-Kind (unless you paid the appropriate rate of interest on the loan.)

Jim Stafford
 
Thanks Jim. Not sure if I fully follow. The problem here is that as of now, all of the security for these personal loans are in the company and used by the company. Unfortunately we have to earn salary out of the company, pay tax on this and then pay down the personal debt. Ideally, more debt would have been transferred when the asset was being transferred to the company, at least to match the value of the asset, i.e there was a higher asset value than the debt transferred. Now the personal debt is secured by the shares in the company. Would be cleaner to be paying debt through the company. I dont think theres anything untoward in that...

Trying to figure out if there is a way of doing a share buy back as there would be retained reserves to facilitate an element of debt transfer in the company. Any one have any ideas at a high level?
 
Ned, it would be helpful if you could put monetary values on the property and the debt.

Was the debt originally charged on the property?

How is the personal debt secured by the shares in the company?


Jim Stafford
 
Quick thoughts.
Valuation of a property for tax purposes does not include associated debt.
Are you sure you were able to sell the property without getting rid of the associated debt, particularly if it were a mortgage?
You could assign the debt from you to the company - but that would involve the creation of a new debt between you and the company, and if the T&Cs were less favourable; probably ultra-vires.
 
Hi all,

At a high level, the value of the asset that was transferred in is worth €700k. I think the loan facility for this remained at €400k, so no problem transferring this debt into the company. Problem is however these is another €600k of debt held in personal names. The vast majority of this debt relates to assets in the company. This is secured by a letter of guarantee from the company, supported by a fixed and floating charge over all the assets in the company and an assignment over life assurance.Think its fine from a company law perspective. Want to figure out how to bring this debt into the company, especially as it relates to company assets. Trying to understand if a share buy back or something like that would work?
 
Ned, your latest posting raises further questions.

Surely, if you transferred in a property valued at €700,000 with a liability of €400,000, then you are owed €300,000!

How is the other debt of €600,000 related to the assets in the company?

What exactly is secured by the letter of guarantee? If your own loans are guaranteed by the company you need to watch the provisions of Section 239 of the 2014 Act i.e. the "old Section 31 provision.

Jim Stafford
 
Jim, from what I can see, the transfer of the property was used to transfer the liability and the rest that was owed was used to clear down the directors current account.

The other debt held personally is fully secured by other assets that are part of the business. These facilities were used to purchase the company shares initially, with a bells and whistle charge over the assets in the company.
 
Ned

It appears that the bank availed of the Section 239 procedure.

Very difficult to obtain Revenue Approval to allow a share buy back: You need to have a strong commercial reason such as a shareholder dispute etc. It seems as if you will have to pay off the personal debt the old fashioned way: i.e. out of after tax income (unless you can sell the company another assets etc.)

Jim Stafford
 
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