Directors loans

[P/T Indie]

Can someone explain to me about what happens when a director leaves do we need to pay them back straight away any loans they might be owed.

Also do we actually ever pay back these loans or do the directors know realistically it's money they won't get back. Also as well as loans do directors invest other cash pretty much as a donation or is everything they put in go down as a loan.

[KenH]

The loans are from "People" not the office, so repayment is down to what was agreed at the outset, not on whether the person is still a director or not - just resigning as director doesn't write off the loan. There are legal charges in each director's name on Companies House, (which again continue if the person resigns) so the loans will be a preferred creditor, i.e. first dibs, in preference to other creditors such as suppliers, etc. Presumably the assets, i.e. ground, buildings, equipment, etc are valued at more than the loan amounts, so the directors who've lent money will ultimately get their money back when the ground/buildings/equipment are sold. Of course, each person may waive their loan but not sure why they'd do that - if they didn't want it back, they wouldn't have got the amounts secured by a legal charge.