3 Steps to Secure Your Director’s Loan – Often Overlooked
If you’ve ever lent money to your own company — whether to help with cash flow or get things off the ground — you’ll want to watch this.
There’s something many directors overlook that could leave their money completely unprotected if things go wrong.
In this video, I explain 3 key steps to make sure your loan is properly secured.
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VIDEO TRANSCRIPT
Ross Millen:
Hi. I wanted to talk to you today about the situation where a director lends money to a company. This could happen during, say, the startup phase or to help with cash flow, and it's a very common thing. We recently had someone who said, "Look, I've lent all this money to the company. Maybe the company's not travelling so well. So now I've suddenly decided I need to have a written loan agreement, and I want to take some security, and I want to register that security." Now, that's fine, but the problem is that if the company was to go insolvent or was insolvent at that moment, then that security's not going to work. It's not going to work against a liquidator. And in this case, rather than claw back for like six months, which is the usual, where you have a preference claim, a liquidator can go back four years to claw back any payments that are made that are preferential to someone associated with a company like a director or a shareholder.
So what's the solution here? The solution is whenever you are going to lend money to a company that you're a director or a shareholder of, document it at the time you're lending the money, and then also take a charge or some other security and register that on the PPSR, the Personal Property Securities Register. And then, when you get repaid, well, it's not a preference because you're getting paid back pursuant to the written loan agreement and the security you already hold. Now, if that hasn't happened, you can try and recover the situation, but you are behind the eight ball. So remember, if you're involved in a company, you're lending money to the company, either a director or a shareholder, get your documents done up front. Get them done properly. So remember, Ross Millen here and the team at Millens, we are here to help you manage your risks.