Case Study: Using a Director Loan Account Strategically

The Situation:

James was the director of a successful IT consulting firm. Over the years, he had personally loaned the company $450,000 to fund its growth. The company now owed significant tax debts to the ATO and was facing potential insolvency.

The Challenge:

James was at risk of losing both his company and the $450,000 he had invested. He needed a strategy to protect his personal investment while dealing with the company’s debt issues.

LemonAide’s Approach:

• Reviewed the company’s financial position and the director’s loan account
• Set up a new Company and properly valued the business of the old company.
• Sold the assets of the old company and its business to the new company for their value and paid real money from the new company to the old company.
• Assisted in properly documenting the loan and registering a security interest on the PPSR against the new Company
• Employed measure to ensure that the business of the new company would be able to pay all of its taxation in the future
• Liquidated the old company.

The Outcome:

• James’s loan was properly documented and secured against the new company’s assets
• This strategy allowed James to ensure that his personal investment was not lost in the new Company
• Dealt with the debt owing to the ATO utilising Liquidation as a tool

Key Takeaway:

Properly structured and documented director loans can provide protection for directors’ personal investments in their companies, even in times of financial distress. These loans must be secured within 20 business days of the date of their creation to have maximum effect.

Are you a director with personal funds invested in your company? Don’t risk losing your investment.