Becoming Secured Creditor of Your Own Company

09/11/2016

Many small companies are funded from money invested by the directors, or by directors leaving their salaries or other payments in the company. This creates a debt of the company, in favour of the directors. If so, it is a good idea to register a charge over the company, to secure the company’s debts in favour of the directors. It is like the company giving the directors a mortgage over all of the company’s assets.

This means that, if anything goes wrong with the company, the directors will be entitled to get their money back out of the company, as a priority creditor, provided that certain formalities are followed. It means the directors will have priority over any liquidator of the company, or any other unsecured creditors, should the company become insolvent.

The process is that a charge document is prepared, signed by the directors, and it is then registered in the Personal Property Security Register. Stamp duty and a small registration fee are also payable.

Once the charge is in place, it can stay with the company forever, and will provide security for whatever the company may owe the directors now, or at any time in the future. Having a registered charge is a good insurance policy for the future.

But, do not leave it too late. If the company is placed into liquidation within six months of the creation of charge, it has no effect.

For more information, please contact Andrew Somerville.

 

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