As is all too common these days, a director’s life (and quite often that of their partner) is interwoven with that of their company. Commonly the director and possibly their partner are the only shareholders, contribute all of their working time, and have invested their futures in the success of the company both from an income perspective and from a capital growth perspective.
It is also common to see such individuals as the largest creditor of the company reinvesting profits over the years and other monies sourced by mortgaging other assets, and in many instances holding no security to accompany that loan and risk.
Often small proprietary limited companies are unable to secure funds in their own right to acquire a business due to the lack of share capital. Often it is the case that if the company can secure lending it is guaranteed by the directors and usually secured over their personal assets, many times over real property.
Sometimes, and for various reasons, the directors choose to borrow funds in their own names in order to advance the funds to their company so that the company can purchase a business. If this happens then the directors should be taking out their own security over the company assets to secure that loan. A bank will want to take out security over company assets for funds they have advance so it is reasonable enough to expect that a director would want to do the same in similar circumstances.
Certainly there will be some costs involved in drawing up formal loan documentation and registering a charge, however, if things do go bad and the directors are left with an insolvent company then at least they will be able to legally secure assets of the company through the exercise of their charge to recoup some of their loan. Without such security they will be left to prove as unsecured creditors and receive a portion of whatever dividend may be available.
Readers should refer to the Worrells web site Fact Sheets for more information on company Charges so see how they might benefit your client directors.