Crippling debt from private lenders with PGs - Help!

babymoonbeam

To cut a long story short(ish), my partner & I had a successful business & borrowed funds into the business from private individuals to grow it. Taken in good faith and with a clear plan at the time, which was working successfully at first. However, a number of events, including the pandemic, changed the course of the business & left us unable to pay the loans back at the end of their terms. These loans, including interest, amount to nearly £800K. Unfortunately we had PGs put in place and now the debt falls to us. We have no unsecured assets left for them to target and our accountant says that they were all high level investors who did their own due diligence and should have known the risks with lending to Ltd companies, which is reflected in the high interest rates they were paid monthly (8-10% Pa). We are being chased constantly and it is making me feel like we have come to the end of the road and my life is over. (No, I don’t have mental health issues and the Samaritans can’t help me - I am a strong minded person but the fact is that this level of debt when being chased constantly with no way of paying it and one lender threatening criminal action for some unknown reason, will cause anyone to feel suicidal, with or without mental health issues normally). We have 2 teenage daughters and I’m terrified of what will become of our family but I can’t see a way out. All suggestions welcome at this stage. Thank you. 

MattMattMattUK

babymoonbeam said:

To cut a long story short(ish), my partner & I had a successful business & borrowed funds into the business from private individuals to grow it.

What do you mean "borrowed funds into the business"? Were these loans, were they investment by way of shares issued, were you private traders, a limited company? Were the loans to you personally then into the company from yourself? 

babymoonbeam said:

Taken in good faith and with a clear plan at the time, which was working successfully at first. However, a number of events, including the pandemic, changed the course of the business & left us unable to pay the loans back at the end of their terms. 

What form did the debt take and what were the actual terms?

babymoonbeam said:

These loans, including interest, amount to nearly £800K. Unfortunately we had PGs put in place and now the debt falls to us. 

What did you spend the £800k on? If it was on plant and machinery, property etc. then what happened to that? If it was on paying yourself wages then you have bigger issues. Have you taken legal advice to find out if the personal guarantees are enforceable? 

babymoonbeam said:

We have no unsecured assets left for them to target

What do you mean by this? There is no such thing as "unsecured assets" or "secured assets". You either have assets which they can recover against, or you do not. It does not matter if that asset is a home with a mortgage, shares, gold bars or whatever. If the personal guarantees are enforceable then they can go after your house, your home, your designer watch etc. 

babymoonbeam said:

our accountant says that they were all high level investors who did their own due diligence and should have known the risks with lending to Ltd companies, which is reflected in the high interest rates they were paid monthly (8-10% Pa). 

Due diligence does not really matter either way, if you had enforceable personal guarantees in place then they can come after you. 

babymoonbeam said:

We are being chased constantly and it is making me feel like we have come to the end of the road and my life is over. (No, I don’t have mental health issues and the Samaritans can’t help me - I am a strong minded person but the fact is that this level of debt when being chased constantly with no way of paying it

Do you have any assets, a home etc.? You have the choice to liquidate assets and repay, or declare yourselves bankrupt, alternatively you can drag it out.

babymoonbeam said:

and one lender threatening criminal action for some unknown reason,

I imagine it is not an "unknown reason", they will have said why. Not that they as a private individual have any realistic prospect of bringing a criminal prosecution. Do they think you were wrongfully trading? Did you not use the money invested for the purpose you declared the loans were for (e.g. said it was to buy an expensive piece of equipment, but spent it on paying yourself instead)?

babymoonbeam said:

will cause anyone to feel suicidal, with or without mental health issues normally).

I would say no, it would not, because there are always options, such as bankruptcy. Please speak to your GP about how you are feeling.

babymoonbeam said:

We have 2 teenage daughters and I’m terrified of what will become of our family but I can’t see a way out. All suggestions welcome at this stage. Thank you. 

You negotiate, repay using any assets you have, you declare bankruptcy, you move on. It is never as bad as it seems. 

sourcrates

Well they can`t take what you don`t have can they, it really is as simple as that, they can write and shout and moan, but at the end of the day if you don`t have the cash or the assets to recover, they are just out of luck.

Debt is not a criminal act, its a civil matter.

The larger the debt you owe, the less chance there is of you paying it, its simple maths really, if you have no assets they cannot do anything much in the way of recovery action.

Do you own property?

Do you work?

babymoonbeam

@MattMattMattUK
1. They were unsecured loans into the business. We used them to grow the portfolio which is what they were provided for. However, we lost a huge amount of equity from the portfolio due to events outside of our control (can’t say more here in case the lenders are on the forum) but the lenders are all aware and understand what happened could not have been foreseen or avoided. The loans were varying lengths and we paid interest monthly. 

Believe me I understand the difference between secured and unsecured assets. We have property but they all have second charges on for the remainder of the equity, so that is what I mean by we can’t use any of our assets to clear these loans. We originally planned to pay them back from a mix of equity release from the portfolio and from releasing funds from other shares we had of considerable value. However, these were lost due to a failure of the business we had them in. This was unexpected and affected several investors on a large scale, including us. Some of our lenders were also affected by it directly, hence them understanding our situation. However, one of them is now saying that they want to take criminal action against us due to this, which is ludicrous as we didn’t have any control over these events and had every intention of paying the loans back when we took them out. We used the funds exactly for what they were lent for. We have been working hard ever since to rebuild the business but it is taking time and we currently are not in a position to start repaying anyone. Our goal is to be able to but some of the lenders are getting impatient (expectedly) and it is causing us great stress. My intention has never been to avoid paying them back but we need more time, which they’re no longer prepared to give. I need to be strong for my girls but this is killing me inside. 

MattMattMattUK

babymoonbeam said:

@ MattMattMattUK 
1. They were unsecured loans into the business. We used them to grow the portfolio which is what they were provided for. 

What was "the portfolio"? Property, shares, bonds, something else?

babymoonbeam said:

However, we lost a huge amount of equity from the portfolio due to events outside of our control (can’t say more here in case the lenders are on the forum) but the lenders are all aware and understand what happened could not have been foreseen or avoided. The loans were varying lengths and we paid interest monthly. 

It does not really matter if the investors are here or not, but what I cannot understand is how this "portfolio" could have lost so much value. Property is worth more than it was in 2019/2020, the stock market is close enough that it should not matter, only a few sectors (mostly hospitality) are actually down on their 2019 positions. Was this a highly leveraged position, inherently high risk?

babymoonbeam said:

Believe me I understand the difference between secured and unsecured assets. 

There is no such thing as secured or unsecured assets. Assets can be used as security, but that does not mean that the asset itself is secured or unsecured. Debt can be secured or unsecured. 

babymoonbeam said:

We have property but they all have second charges on for the remainder of the equity, so that is what I mean by we can’t use any of our assets to clear these loans. We originally planned to pay them back from a mix of equity release from the portfolio and from releasing funds from other shares we had of considerable value. However, these were lost due to a failure of the business we had them in. This was unexpected and affected several investors on a large scale, including us. Some of our lenders were also affected by it directly, hence them understanding our situation.

They may understand to an extent, but they also had the foresight to put personal guarantees in place, it is not surprising that they are now wanting to call those in as sympathy only goes so far.

babymoonbeam said:

However, one of them is now saying that they want to take criminal action against us due to this, which is ludicrous as we didn’t have any control over these events and had every intention of paying the loans back when we took them out. We used the funds exactly for what they were lent for.

A lender personal or commercial has no real ability to for a criminal prosecution, private prosecutions are incredibly expensive, hundreds of thousands to millions and rarely if ever succeed. They could ask the police to investigate if they had clear evidence of some kind of fraud, but I suspect that if they had that they would have already told you what evidence they had.

The only issue might arise if you have used a significant amount of the money for living expenses, paying yourselves from the business when it was obvious it was insolvent. That would be deemed wrongful trading and is in theory a criminal matter, but prosecutions for it are rare. Did you continue to remunerate yourselves from the business when it could not pay it's debts, are you currently taking any money out of the business?

babymoonbeam said:

We have been working hard ever since to rebuild the business but it is taking time and we currently are not in a position to start repaying anyone.

Is it the same Limited company? A new Limited company? Have you been taking money out of the business whilst not paying your debts as they fall due?

babymoonbeam said:

Our goal is to be able to but some of the lenders are getting impatient (expectedly) and it is causing us great stress. My intention has never been to avoid paying them back but we need more time, which they’re no longer prepared to give.

You should take professional advice, but it appears to be time to seriously consider bankruptcy if your debts exceed your assets. If your debts to not exceed your assets then you need to liquidate the assets and repay the debts. The alternative is that your creditors go down the route of making you bankrupt, which is a much more brutal process than doing it yourself. 

babymoonbeam said:

I need to be strong for my girls but this is killing me inside. 

You need to manage your mental health first or you will not be able to help them or yourself, please speak to your GP. You have said your children are teenagers, they will be fully aware of the pressure that is on you so trying to hide it from them is not a good option for anyone, them or you. 

They key will be to manage the changes in lifestyle that will have to happen to turn this around carefully. That means taking control of the process, potentially though bankruptcy, the alternative is to wait for one or more of your creditors to take control of the process from their side which is a brutal way to experience bankruptcy or another form of insolvency. 

birdsfoottrefoil

Just to echo the post above, this all seems very unnecessarily cryptic and hard to follow? Also not sure why the lenders would be on here unless they had/have debt issues?