Limited company closing, partner owes me money. How best to reclaim it?

greengibbon

Hi, I hope this is the most suitable board to post this! I hope you can help.

For three years I owned a Limited Company with two other equal partners, so we were all directors of the company.

We are now closing the company, but one partner has made more drawings from the company than we (the other two partners) have.

We have had accountants from day one so everything is documented including our personal drawings.

The final accounts are being prepared and any money left in the business will be split between the two partners than are owed money by the other, offsetting the third's debt.

However when the company is closed, the in-debt partner will still owe us money, to the sum of around £8000 each (so £16000 in total)

My question is, how is the best way to recover this money? He is still a friend so would not want to do anything extreme, but at the same time he's effectively borrowed a lot of money from us, and we need to get it back.

He doesn't really have any assets but earns regually. Would it be best to set up a re-payment system? Is there anything legal we can set up to ensure we get all the money back?

As I said, we have always had accountants so the deficit is plain to see.

If you offer any advise I'd be very grateful,

Thanks

John

dunstonh

Get a solicitor to draw up an agreement that confirms his liability to you and agree a formal monthly repayment.

hippyadam

dunstonh wrote: »

Get a solicitor to draw up an agreement that confirms his liability to you and agree a formal monthly repayment.

Seconded, and ensure he accepts personal liability not merely a liability as an officer of the Ltd company.

greengibbon

hippyadam wrote: »

Seconded, and ensure he accepts personal liability not merely a liability as an officer of the Ltd company.

Thanks. What if he refused to sign this document holding him liable to repay the amount whatever reason?

Secondly, would it be best to draw this up individually to what is owed to me? Leaving the other partner who is owed to draw his own agreement?

Annisele

You might want to take advice from your accountants before doing anything.

There's nothing wrong/illegal/immoral about one director being paid more than the other two. If his salary was higher, or if held a greater proportion of the shares, then he doesn't actually 'owe' you anything.

If his additional 'drawings' were effectively loans from the company, then he should pay that back (or come to an agreement with you and the other guy) before the limited company is dissolved. If you wait until after the company has been dissolved, then its assets (the loan made) will belong to the Crown - which isn't what any of you want!

I strongly suspect that your accountants will have come across this situation before and will be able to advice.

(I'm a tad confused by your terminology, so I might be completely wrong with the above. So far as I know, directors in limited companies take money out of the business through a combination of salary and dividends. Partners in partnerships often describe the money they take out as drawings. I'm not 100% sure whether you had a partnership as well as a limited company or not).

greengibbon

Annisele wrote: »

You might want to take advice from your accountants before doing anything.

There's nothing wrong/illegal/immoral about one director being paid more than the other two. If his salary was higher, or if held a greater proportion of the shares, then he doesn't actually 'owe' you anything.

We are all 33% stake holders; equals in the company.

We basically took drawings each month which were kind of a "wage", slightly different amounts from each other, but after a period, if one of us had taken out £2000 more, for example, then the others would get paid the difference to balance it out. Maybe not directly into our bank account but into our "share" of the money in the accounts.

Our individual drawings have always been monitored.

At one point, the guy in-debt took out a lump sum to pay for a new car, so on paper he has much larger drawings than us. For example his drawings are at -£16000, meaning he's basically spend over his allocation and actually dipped into the remaining funds, which are effectively our funds, meaning he owes us each £8000 each.

So I guess you could consider that a 'loan' from the company.

The final accounts are being sorted at the moment, so the company is still running, even though we aren't using it. They don't seem to be able to offer much advise on what we should do!

I hope you can understand the situation a little better now. Obviously I don't want to close the company with this debt, which could mean he wouldn't be liable to pay for it.

Annisele

Does the 'guy-in-debt' agree that he owes money to the other two? Does he agree about the amounts? If he doesn't, then you might want to take yourself off to a solicitor.

Even if he does agree, a solicitor might still be able to help you - as you say, you want to avoid doing anything that extinguishes any liability he might have.

(If he's taken £16k more than than the rest of you, then wouldn't he owe you about £5.3k each, rather than £8k?)