Turning loan notes issued by my company into cash

tau3282

I got a call from my company a couple of years ago that they were selling out and they bought my ownership out for a combination of cash and loan notes. So 60% was paid up in cash and 40% issued as loan notes to avoid going into capital gains tax. Not a huge sum of cash but welcome.

Now I have a two year old bit of paper here which says I'm the beneficial owner of circa £5k of 12% fixed rate unsecured loan notes. these are held by a company in Jersey as a nominee and the rights attaching to the notes are in accordance of the articles of association of the company.

I understand that I should be able to cash these now but I have no idea how I go about it.

The directors aren't exactly helpful or easy to get hold of these days due to massive expansion in the last two years.

Any help appreciated as I'd like to make a clean break from them shortly!

KGriff

I'm not an expert in relation to loan notes and have never had any involvement myself, but my understanding is they are an extended form of an IOU from one party to another that enables a payee to receive payments (possibly with interest) over a set period of time, often ending with the date at which the entire loan is to be repaid.

Loan notes are usually provided in lieu of cash at the payee's request and can help an individual investor avoid 'undue' tax.

So I would have assumed that when it/they were issued that it was accompanied by terms and conditions... In fact they are normally contained in the note itself. These are the 'normal' details that a loan note contains:

The names and addresses of the lender and borrower.
The date the loan note was issued.
The amount of money to be borrowed or the debt owed, known as the principal sum.
The frequency of payments or when the note should be redeemed or expires.
Interest rates that are to be applied to the loan or debt.
Whether the loan is to be secured or unsecured.
Signatures, dates, and witness signatures if required.
Details on penalties for late payments, defaults, and compounded interest.

The loan notes are legally binding.

A breach of any type of legally binding contract including loan notes can have serious consequences. Where money is concerned there will usually always be some form of legal consequence including the possibility of court action and penalty fines for late payments.

The terms and conditions of the loan note should include clauses on breach of contract and the consequences to an individual or company that incurs the breach.

I believe where the loan note has no specific end date, that the lender (you) can call in the debt (IOU,) but should give a reasonable time for it to be paid (a few days).

If there is default, because the document is legally binding and is a debt, I guess that means you take the matter to the county court and deal with it like any other debt owed.

I believe loan notes in some circumstances can be sold to banks and financial institutions too, but obviously they pay a lot less than the face value, but then they (the bank etc.) have the issues of chasing the IOU.

Now as a disclaimer to myself the advice above is only my opinion and understanding of how loan notes work, you may want to seek the opinion of others before choosing your course of action.

Hope that helps.

tau3282

Thanks for your reply - much appreciated.

That aligns with my current understanding of it and fills in a few gaps. There are no conditions imposed looking at the articles of association (companies house download today for £1 - good show!) nor on anything I initially signed so I suppose I can just ask for payment. Will try that and see where I get; worst they can do is say no or outline any terms.