Asked to be company director for credit rating

Steel_2

A close relation has asked my husband to take over and be a director of his company while he steps down for a few months.

This relation's business is solvent and trading well, has for the last 18 months. There are no staff and he takes a wage. It has no overdraft, no loans and turns over a reasonable amount of money each month and is always in profit. However, recently the service he uses to accept credit payments from customers has been taking 10 days or more to clear their payments and they are getting annoyed. As a result, he has lost future business as some of his repeat customers have customer orders of their own they are trying to fulfil and are now going elsewhere. He recently had a £10k order he couldn't accept as they wanted to pay by credit card and pick up the order pretty much immediately.

This relation has appalling personal credit which he has been trying to come back from. His house is in negative equity. He closed down a business a few years ago which was doing well until a licensing law was passed that made it financially impossible for small businesses to continue trading and he had to give it up. A second business with a partner was doing well but the partner lost interest and it needed two of them to make it work – it’s still there but not trading. He was also taken to the cleaners by a someone who got him to sign over some intellectual property and he got nothing for it and had to start again. Then his spouse became ill long term and their income dropped dramatically. All the time he was taken out loans and using cards to try and keep the household bills paid. He has been quite naive in the past and paid for it.

He applied to his bank to obtain the credit handling facilities for his website so he could accept customer payments directly, and was initially told by the branch manager that his books were good and there shouldn't be problem. Then personal credit searches were done and he was refused the service. The branch manager took him to one side and told him the way to get round this was to ask someone with a good credit rating to take over as company director for a few months, apply for the credit management facilities and then when accepted and everything is up and running change the directorship back. And that's when the phonecall to us came.

We are very close to this relation and want to help. He always seems to have doors slammed in his face just when things look good and is getting upset and frustrated that he can't pull ahead with a business which is doing so well during a recession. Knocking back £10k of business has pretty much been the last straw for him.

Any ideas on whether this is something we could do and what the implications might be for us?

crazyguy

Implications, Business fails and you are then in debt to the Bank as personal guarantees are the norm.

It depends on how solvent this business is but I would have though that signing up as a director and getting the required credit from the bank and then signing off as director will not get you out of the debt if the Company fails, as you would be signing a personal agreement with the bank for any monies borrowed so in effect even if you are no longer a direcor they can still come after you if the business struggles to repay what it owes them.

Steel_2

crazyguy wrote: »

Implications, Business fails and you are then in debt to the Bank as personal guarantees are the norm.

It depends on how solvent this business is, but I would have though that signing up as a director and getting the required credit from the bank and then signing off as director will not get you out of the debt if the Company fails, as you would be signing a personal agreement with the bank for any monies borrowed so in effect even if you are no longer a direcor they can still come after you if the business struggles to repay what it owes them.

From what I understand, this relation doesn't want credit as such - he's not asked for a loan or money. He wants a direct way of accepting payments from customers through his website via his bank and Sage software. He just wants a way for his customers to pay for goods quicker and faster.

Are you saying that any service that my husband signs up for as a director on behalf of a limited company he will be personally be liable for?

crazyguy

If its through the banks then yes I would have thought signing anything with them will mean that he is held accountable for any possible losses.

If it's only for receiving credit card payments then has he not considered an outsourcing Company, not through the bank but one like this,

http://www.creditcall.com/online_payment_processing.html

I know the fee's are slightly higher but at least if any problems arise then you're Husband will not be held accountable.

crazyguy

The reason I would say it is not a good idea to go on board as a Director is simply through prior knowledge of some terrible situations that I have seen and people have gone in with all good intentions only to have there fingers burnt.

Errata

Has he considered selling his billings to a Factor?

crazyguy

Errata wrote: »

Has he considered selling his billings to a Factor?

Errata, I did think of that but in most cases again they need an agreement signed via a bank to enable factoring of invoices, also these factoring Companies can be quite expensive and also very strict on credit limits and the actual collection of outstanding invoices.

Annisele

Steel wrote: »

Are you saying that any service that my husband signs up for as a director on behalf of a limited company he will be personally be liable for?

Not generally - but as crazyguy says, he likely will be liable for a service provided by the bank.

If the bank didn't want a personal guarantee from a director, there'd have been no point credit checking your relative in the first place. So, it appears the bank does want a personal guarantee - and if your husband gives it, then he'll be personally liable for those debts.

As a director, he could also be potentially liable for a bundle of things. He couldn't just take a back seat to the running of the business; he'd have to fully understand all of his rights and obligations. For example, if the business was trading whilst insolvent your husband (as director) would be in a mess. Your husband would have to consider what he'd do if he thought that the business needed to be liquidated but your relative didn't agree.

Is your husband currently employed? Would he keep that employment whilst being a director? Lots of employers won't allow their employees to be directors of other companies without permission (or sometimes at all) so you need to be sure that he wouldn't lose his existing job by doing this.

In short, if your husband really wants to do this then I think he needs paid-for legal advice.

Steel_2

Crazyguy - he is using one of these companies at the moment and the problem is that it is taking too long to get cleared payments from them and he's losing business. He wants a service that clears in a faster time so he can get the goods out quickly. At the moment he has to rely on the good graces of his customers who are willing to wait 10 days before he can even post the goods out, so roughly two weeks to their door from when the payment is taken from them.

Errata - there are no billings as such. He doesn't invoice and then wait for payment. It is literally someone sees the goods they want, they pay straight away through this third party and he sends the goods on when the third party clears the money into his account.

Annisele - It does sound as if they want a personal guarantee, which I'm surprised about as the business is taking between £5k-£10k a month, has less than £100 fixed outgoings and has no liabilities. No loans, no overdrafts. It's been this way for 18 months and always takes the high end of that monthly amount around Christmas time. This relative is concerned that there is going to be a lot of business he's going to have to turn away soon or will lose due to this 10 day wait before he can post. With the Christmas post being the way it was last year, you could be talking 2-3 weeks before someone's stuff turns up, which isn't fast enough.

As far as I can see, the proposal is for hubby to do this until January at the latest - so perhaps 10 weeks as a director and then resign.

I'll ask my husband to check with his employers whether he can be a company director while employed. I really don't think there will be, as the managers are well aware of his other colleagues who run companies on the side. But I will check to make sure. It may be their companies are not limited companies, just sole traderships.

I really feel for this relation. I'd be spitting chips if I had a company turning a profit like that and had to turn down business under such frustrating circumstances.

crazyguy

Steel wrote: »

Crazyguy - he is using one of these companies at the moment and the problem is that it is taking too long to get cleared payments from them and he's losing business. He wants a service that clears in a faster time so he can get the goods out quickly. At the moment he has to rely on the good graces of his customers who are willing to wait 10 days before he can even post the goods out, so roughly two weeks to their door from when the payment is taken from them.

Errata - there are no billings as such. He doesn't invoice and then wait for payment. It is literally someone sees the goods they want, they pay straight away through this third party and he sends the goods on when the third party clears the money into his account.

Annisele - It does sound as if they want a personal guarantee, which I'm surprised about as the business is taking between £5k-£10k a month, has less than £100 fixed outgoings and has no liabilities. No loans, no overdrafts. It's been this way for 18 months and always takes the high end of that monthly amount around Christmas time. This relative is concerned that there is going to be a lot of business he's going to have to turn away soon or will lose due to this 10 day wait before he can post. With the Christmas post being the way it was last year, you could be talking 2-3 weeks before someone's stuff turns up, which isn't fast enough.

As far as I can see, the proposal is for hubby to do this until January at the latest - so perhaps 10 weeks as a director and then resign.

I'll ask my husband to check with his employers whether he can be a company director while employed. I really don't think there will be, as the managers are well aware of his other colleagues who run companies on the side. But I will check to make sure. It may be their companies are not limited companies, just sole traderships.

I really feel for this relation. I'd be spitting chips if I had a company turning a profit like that and had to turn down business under such frustrating circumstances.

Can he not go the following route,

Take an order Customer then pay's the 3rd party as they are doing so at the moment, upon confirmation of the said payment release goods to customer and await the 10 day period for the money to hit his account.

All he may need is some spare cash in account to cover cost's while he awaits money to come in and after a month or so will be in a routine of having x amount owed in and x amount in the account ?

Steel_2

crazyguy wrote: »

Can he not go the following route,

Take an order Customer then pay's the 3rd party as they are doing so at the moment, upon confirmation of the said payment release goods to customer and await the 10 day period for the money to hit his account.

All he may need is some spare cash in account to cover cost's while he awaits money to come in and after a month or so will be in a routine of having x amount owed in and x amount in the account ?

That could work.

I don't know why he hasn't done this - maybe he pays himself the highest he can so he can pay off his debts and there isn't as much cash in the business as he would need to cover up to 10K worth of goods. I don't believe the business even has a credit card he could buy the goods with.

I know that he is an official trader for one of the brands of goods he sells but he also trades in many other brands in the secondhand market. I want to know how much of his business every month is split between these in case the distributor of the new goods dumps their agreement and refuses to allow him to trade its goods any more.