Re: Moving company bank money around...

On Fri, 04 May 2007 19:53:42 GMT, Ronald Raygun
<no.spam@xxxxxxxxxxxxxxxxxxxxx> wrote:

Peter Saxton wrote:

On Fri, 04 May 2007 16:19:26 GMT, Ronald Raygun
<no.spam@xxxxxxxxxxxxxxxxxxxxx> wrote:
Peter Saxton wrote:
It's like the situation where someone gets fined for using a
non-hands-free mobile phone while driving. Only an idiot would say he
was using the mobile phone" in his capacity as a phone user" not in
his capacity as a driver. If you are driving you are not supposed to
use a mobile phone unless it is hands-free.

That's not a proper analogy because it is clear that the purpose of the
mobile phone rules is to improve road safety, based on the underlying
assumption that using a phone adversely affects the driver's ability to
control the car.

I'm not clear why that makes it not a proper analogy.

I'm sorry to hear it.

To me it is a proper analogy and you are not able or willing to
justify why it is not a proper analogy therefore I am happy to go with
my view.

Similarly, if you are a director the directors loan rules apply.
Whether you are a shareholder or an agnostic has no bearing on whether
the rules apply.

Well, that's your view and I respect it, but it disagrees with Keith's,
and I also respect his. Why do you not concede that it is *possible*
that you may be mistaken?

Either I seem to know more about the subject than him or he believes
that the law should not be respected.

Well, the second option is as good as libellous, so let's go with the
first. "Seem" to whom? To you, apparently, but how can you *know*?
All we can know is that we don't know enough, to paraphrase Descartes.

The second option is not libellous. I have explained why in various
posts. I have given explanations and a reference to support the first
option.

Ask yourself what the purpose of the directors' loan rules is. It seems
to me that it can only be that in general directors are not entitled to
borrow company dosh because it conflicts with the interests of the company
owners (i.e. shareholders). But where the director in question is
also the sole shareholder, there cannot be a conflict of interest,
and so the rules should *for that reason* not apply.

If the director lends money to himself then there may be insufficient
funds to pay creditors if the loan is not repaid.

That's rubbish, unless the director then goes of and spends it.
The bank with which the company funds are deposited could also go bust,
and then there would also be insufficient funds to pay creditors.

Why is it rubbish? It's true. If the loan is not repaid then there may
be insufficient funds to pay creditors. It's not rubbish.

As long as the company deposits funds with a bank that has a good
credit rating there is little risk of the bank going bust.

Answer me this, please. Do you think it is lawful for a sole shareholder
to borrow company funds if he is not a director? If not, why not?
And if so, then why should it become unlawful if he happens also to be
a director *in addition* to being the sole shareholder?

It isn't unlawful if it is in the ordinary course of business but if
the ordinary business is not of money lending than it is not lawful
subject to the rules I have outlined.

Is that in answer to the first, second, or third question in my paragraph?

First.

If the company is in the money lending business they can lend money to
shareholders if they are on similar terms and conditions to other
customers.

The company is lending money to the banks they bank with. Where does
the law say that monies may only be deposited with accredited banks?
Why can it not be deposited with individuals?

The company is not lending money to the bank. They are operating a
current account and maybe depositing money in a savings account.
Directors have a duty of care. You would be locked up if you tried to
pretend that you "deposited" funds with an individual who just
happened to be the sole director and shareholder rather than a bank.
Even if the funds were deposited with an unrelated individual rather
than a bank the directors could be committing a criminal offence.

I may be mistaken as to the purpose of the rules, but I can't off hand
think of any other reasonable purpose for them. I'd be delighted if
you could supply any others. We can take it as read that the interests
of the taxman should be protected too, of course.

If directors are able to lend money to themselves then there may not
be sufficient money to pay creditors if they money is not able to be
paid back.

But why should the money be unable to be paid back, if it is just
invested with some other bank which is as safe as the bank it was
originally with?

It is outside of the control of the company even if it the director
and individual are the same. Something could happen in the individuals
financial affairs that would mean the money would not be available to
be repaid, for example, the bank acoount could be subject to a court
order. This is why responsible directors do not lend money to
individuals if they are not in the money lending business. Only
reckless and irresponsible people recommend these kinds of things.

"Lending" money to shareholders seems to be an easy way of avoiding
paying tax on dividends.

In extremis it could be, if the loans are not repaid, but we're just
talking about temporarily borrowing funds earmarked for a corp tax bill,
aren't we?

Yes, and I have shown that these are illegal. There is also a tax
effect of this illegal loan.

--
Peter Saxton from London
peter@xxxxxxxxxxxxxxxxx
.

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