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business loan illegal
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In 2003 I set up a ltd company, by 2005 it was doing quite well so got a business loan in order to rent premises. Business then took a downturn and we had to give up the premises. by 2007 the business owed the bank £30,000 on loan and £30000 on overdraft, both secured. these were giving issues regarding corporation tax on directors loan deficit. I asked my manager if there was any way around this. He said I would need to inject capital, which I did not have, but the bank could lend me. They would not give a personal loan but instead opened a business account in my name and gave a business loan to that. This was immediately transferred to the Ltd Company to pay off lending.
What I had not realised was that I now could not set off the interest on the new loan as in reality the associated business did not exist. The company carried on losing money and in 2009 after speaking to my new manager she said all she could do was to give a new loan to the non existent business which would again clear the previous loan and overdraft. After that the bank would not lend anymore. In 2013 the company was wound up for £30,000.
I drew very little money from the business in the ten years of trading. I was desperate to keep it going until things turned around. One way or another I have always met the loan repayments, mainly with help from my wife
I am now 60, in a self-employed partnership and every month I pay £900, about half my earnings into the fake business account which then pays the loan which now stands at £80,000, this I will have to do until I am 70.
At all times the bank were aware of my financial circumstances and those of the Ltd Company.
With hindsight the bank really should not have made those loans for the following reasons:
1. That if they could not lend to the Ltd Company then as my only income came from that source the loans were not viable.
2. That the business loan to a business that had no history, income or expenses and did not trade cannot have been correct.
3. The loss of tax relief on the interest was and will continue to be for the next 9 years far more damaging then any corporation tax saved on the Ltd Company.
It has been suggested to me that the banks actions may even have been illegal and that I might find that I was complicit.
I know I was stupid but I was desperate. I am not one of those that fleeces their own company and then lets it go bust. In ten years I have earned next to nothing and the loss of the company has been a humiliating thing of which I am ashamed.
Question Were the banks actions either irresponsible or even illegal?
What I had not realised was that I now could not set off the interest on the new loan as in reality the associated business did not exist. The company carried on losing money and in 2009 after speaking to my new manager she said all she could do was to give a new loan to the non existent business which would again clear the previous loan and overdraft. After that the bank would not lend anymore. In 2013 the company was wound up for £30,000.
I drew very little money from the business in the ten years of trading. I was desperate to keep it going until things turned around. One way or another I have always met the loan repayments, mainly with help from my wife
I am now 60, in a self-employed partnership and every month I pay £900, about half my earnings into the fake business account which then pays the loan which now stands at £80,000, this I will have to do until I am 70.
At all times the bank were aware of my financial circumstances and those of the Ltd Company.
With hindsight the bank really should not have made those loans for the following reasons:
1. That if they could not lend to the Ltd Company then as my only income came from that source the loans were not viable.
2. That the business loan to a business that had no history, income or expenses and did not trade cannot have been correct.
3. The loss of tax relief on the interest was and will continue to be for the next 9 years far more damaging then any corporation tax saved on the Ltd Company.
It has been suggested to me that the banks actions may even have been illegal and that I might find that I was complicit.
I know I was stupid but I was desperate. I am not one of those that fleeces their own company and then lets it go bust. In ten years I have earned next to nothing and the loss of the company has been a humiliating thing of which I am ashamed.
Question Were the banks actions either irresponsible or even illegal?
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Question Were the bank's actions either irresponsible or even illegal?
You'll get some well intentioned amateur advice on here, but really you need professional help from a solicitor who specialises in this sort of thing. They might even take it on a no win no fee basis if you have a good enough case.I used to think that good grammar is important, but now I know that good wine is importanter.0 -
It has been suggested to me that the banks actions may even have been illegal and that I might find that I was complicit.
I know I was stupid but I was desperate. I am not one of those that fleeces their own company and then lets it go bust. In ten years I have earned next to nothing and the loss of the company has been a humiliating thing of which I am ashamed.
Question Were the banks actions either irresponsible or even illegal?
On what grounds would they be illegal?
What did your accountant say about all of this at the time?
Presumably the second "business" account was for you as a sole trader rather than another Ltd?
It sounds potentially like irresponsible lending but nothing you have said suggests their actions were illegal. Of cause if you didnt declare your self employed activity in terms of the loans then you may have been. This is something your accountant should have been assisting with though
As above, given the size of the debt, get professional advice0 -
In 2003 I set up a ltd company, by 2005 it was doing quite well so got a business loan in order to rent premises. Business then took a downturn and we had to give up the premises. by 2007 the business owed the bank £30,000 on loan and £30000 on overdraft, both secured. these were giving issues regarding corporation tax on directors loan deficit.....
The deficit on the directors loan means that you were borrowing money from the company. HMRC does indeed take a particular view of such arrangements and charge CT in certain circumstances.... I asked my manager if there was any way around this. He said I would need to inject capital, which I did not have, but the bank could lend me. They would not give a personal loan but instead opened a business account in my name and gave a business loan to that. This was immediately transferred to the Ltd Company to pay off lending......
So you then borrowed money from a bank to pay back the company. I can't see what difference it makes if the the loan you obtained from the bank was labelled 'personal' or 'business'....What I had not realised was that I now could not set off the interest on the new loan as in reality the associated business did not exist. .....
Presumably you mean 'set off the interest' as in 'set off the interest' for tax purposes. As far as I can recall, you can only set off interest on a loan to finance an investment in a close company, or something like that. Anyway, if you wanted advice on the tax aspect of that loan arrangement you should have asked an accountant...The company carried on losing money and in 2009 after speaking to my new manager she said all she could do was to give a new loan to the non existent business which would again clear the previous loan and overdraft. After that the bank would not lend anymore. In 2013 the company was wound up for £30,000. .....
So you borrowed some more money to keep the company going. Understood.....I drew very little money from the business in the ten years of trading......
You must have drawn something out of the company. Otherwise you wouldn't have had an overdrawn directors loan account and a CT problem.... I was desperate to keep it going until things turned around. One way or another I have always met the loan repayments, mainly with help from my wife...
That is often the case.0 -
... At all times the bank were aware of my financial circumstances and those of the Ltd Company.
With hindsight the bank really should not have made those loans for the following reasons:
1. That if they could not lend to the Ltd Company then as my only income came from that source the loans were not viable...
In 2007 the Ltd company owed the bank £60k. This lending was "secured", presumably by a directors guarantee. In 2013 the company was "wound up for £30,000", presumably owing the bank £30k? Whilst you, presumably, owed the bank £xk in respect of the borrowings taken out in your name.
If the Ltd company borrowings were secured by a personal guarantee, in what sense are you in any way worse off than if the bank had lent the extra money to the company rather than you?..2. That the business loan to a business that had no history, income or expenses and did not trade cannot have been correct....
The only difference between a business loan to a private individual and a personal loan to a private individual would be the purpose for which the funds were advanced. Since your intention was to advance the money to a Ltd company, it sure looks like a business loan...3. The loss of tax relief on the interest was and will continue to be for the next 9 years far more damaging then any corporation tax saved on the Ltd Company...
Banks are not in the business of giving tax advice. Had you asked them for tax advice, I'm sure they'd have told you to consult an accountant.0 -
In the first few years when the company was doing reasonably I did draw some money along with another director, and this was enough to put the Directors loan in deficit.
the invented business account was in the name of myself and my wife this, apparently, was because our property was in joint names and therefore so was the security held by the bank. The manager knew both of us very well and was fully aware that neither of us was sole trader or in partnership.
I am not saying for one moment that my actions were perfect, I am simply questioning whether the bank acted properly in their advice to me. The difference between a personal account and a business account is there has to be a business to get a business account.
Had they given a personal loan in joint names that would be a different matter but they would not do this.
I am not blaming the bank for the failure of the business.
Were I to walk into a bank now and ask for a business loan of say £60,000 for a business that doesn't trade, has no books, income or expenditure, I know what answer I would expect and quite right too. So what is the difference?
If they had to invent the business to make the loan then the question is should they really have lent anything?
It was a different culture then and the truth is that they would find any way possible to lend money provided they had security regardless of the ability to repay. The business was simply a device enabling the loan.0 -
... The difference between a personal account and a business account is there has to be a business to get a business account. ....
I do not believe that there is any such rule in law....Were I to walk into a bank now and ask for a business loan of say £60,000 for a business that doesn't trade, has no books, income or expenditure, I know what answer I would expect and quite right too. ..
The answer could well be 'yes'. It would have to be yes some of the time, otherwise nobody would ever get a new business off the ground.0 -
Out of interest this is from the Lloyds website today re applying for a business account
Before you apply you will need to have the following information available:- Contact details for you and your business.
- For each named person on the account we'll need their full name, date of birth, nationality and home address for the past 3 years.
- Your business set up costs.
- The expected turnover of the business in the next 12 months.
- If you do not hold a personal account with Lloyds Bank, all parties will need to provide proof of identity and evidence of their address.
- You are a sole trader, partner, or director
- You are aged 18 or over
- You require the account for business use
Still think it was ok? when there were
No set up costs
No expected turnover
Not for business use.
Look at it another way should the bank have lent me money via an invented business that had none of the above in the certain knowledge that I was then just going to give it as a gift to a privately owned Limited Company? In law it makes no difference that I was director of that Company it was an entity in it's own right.
Remember it is the invented business that has the debt0 -
Look at it another way should the bank have lent me money via an invented business
I think you mean "should I/We have borrowed money for an invented business."Remember it is the invented business that has the debt
Not really. You have already said "the invented business account was in the name of myself and my wife" It is therefore yourself and your wife that have the debt.
I find it strange you thought your business was going well after two years and yet had to borrow just to pay the rent. Even stranger that you thought it was OK to award yourselves directors loans while falling into £60k of secured debt.
What did your accountant say about this? They are the people you pay for financial advice.0 -
Ok, but the point at issue is not whether I was to blame and should have known better, that I have already said I accept. The point is that the bank made a lot of money from me and the company and a good part of that was to have "a business relationship manager" who was there for advice. However I behaved it is still to be expected that the bank would behave properly and not necessarily to see someone in the position I and the company were in as a soft touch. The original question was Were the bank irresponsible, did they breach their own rules and could their actions be said to be legal? My part is an irrelevance0
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