Company in administration
Discussion
Just a quick q - if a Ltd company goes into administration with an overdrawn current account, is that debt treated in the same way as other trade debt, or does the bank get preferential treatment ie overdraft is paid off before other creditors? Assumption is that there are no guarantees given for the overdraft and it was used for normal cash-flow issues.
essentially* all debts are treated the same, with the distinction being secured or unsecured. if the overdraft was unsecured then the bank rank equally with other creditors.
if the bank had any security, then it would probably be an all-monies security which would cover the overdraft as well as any other lending. in this case it would get priority.
(* employee claims/unpaid dividends/costs of the administration etc. are/can be treated differently)
if the bank had any security, then it would probably be an all-monies security which would cover the overdraft as well as any other lending. in this case it would get priority.
(* employee claims/unpaid dividends/costs of the administration etc. are/can be treated differently)
The insolvency practitioner may chase directors if there are breaches of duty or other wrongdoings, but all a case by case basis depending on how much is in the kitty to cover costs and the likelihood of a return for creditors. A coupl of IPs post on here and will prob be along shortly to confirm / correct me.
As far as I know, most banks will have asked for a personal guarantee on the business overdraft. If the directors didn't sign a personal guarantee, they were very lucky, and the bank cannot chase them personally for any debts.
Assuming they DO have a PG on the bank overdraft;
If the company owes money, any proceeds are divided equally amongst the creditors, including the bank overdraft. (There are a couple of exceptions noted in second post - employees etc. get first dibs). Any monies left owing to the bank after the divvying will be covered by the personal guarantee, the Directors will have to pay this back from personal funds. The bank MAY agree to a lower lump sum figure, or staged payments. In the current climate, they're happier to get something back rather than nothing.
Another scenario;
HOPEFULLY the bank were holding a 'debenture' (this has to be registered with Companies House) over any stock or assets of the company. This means that they get first bite of the cherry from any proceeds (after the employees/insolvency practitioners).
Once the bank have taken their bit, any further proceeds are divvied out amongst whoever is left.
You really need to find out if there was a debenture and personal guarantee on the overdraft, a call to the bank will find this out for you. The difference of having these bits of paperwork will make a large difference to the outcome for the directors, so it's important to find out ASAP.
It's a word of warning to any director, if you have a personal guarantee, get a debenture in place too, then should the worst ever happen, the bank loans (that are personally guaranteed) are the first to be paid off from any proceeds from stock and assets.
Insolvency helpline should be able to help too, google it.
Good luck!
Assuming they DO have a PG on the bank overdraft;
If the company owes money, any proceeds are divided equally amongst the creditors, including the bank overdraft. (There are a couple of exceptions noted in second post - employees etc. get first dibs). Any monies left owing to the bank after the divvying will be covered by the personal guarantee, the Directors will have to pay this back from personal funds. The bank MAY agree to a lower lump sum figure, or staged payments. In the current climate, they're happier to get something back rather than nothing.
Another scenario;
HOPEFULLY the bank were holding a 'debenture' (this has to be registered with Companies House) over any stock or assets of the company. This means that they get first bite of the cherry from any proceeds (after the employees/insolvency practitioners).
Once the bank have taken their bit, any further proceeds are divvied out amongst whoever is left.
You really need to find out if there was a debenture and personal guarantee on the overdraft, a call to the bank will find this out for you. The difference of having these bits of paperwork will make a large difference to the outcome for the directors, so it's important to find out ASAP.
It's a word of warning to any director, if you have a personal guarantee, get a debenture in place too, then should the worst ever happen, the bank loans (that are personally guaranteed) are the first to be paid off from any proceeds from stock and assets.
Insolvency helpline should be able to help too, google it.
Good luck!
Edited by maser_spyder on Thursday 30th April 10:23
As far as I am aware, there was never had a debenture taken out, and from searching through the paperwork I cant find any mention of personal guarantees, but I'll check again. Its only a small (!) overdraft of £10k (Abbey Business) and I know when we discussed a higher limit last year they were then asking for guarantees. But we didn't progress with the application.
Ah well, time to make a phone call......
Ah well, time to make a phone call......
I've seen this situation before, usually for overdrafts and loans under 10k banks dont ask for personal securities on the money. If the company goes tits up and there is no security the bank just steps in line with other creditors.
If there was a personal garauntee or security on the overdraft then the company and bank should hold the paperwork.
If there was a personal garauntee or security on the overdraft then the company and bank should hold the paperwork.
Just read this topic again...mondeoman is it your company that has gone under?
Just to let you know, when the bank are owed money they can get quite heavy handed with threatening letters and phone calls etc. However if they dont have a security then they cant claim any more than a slive of what is left to pay all creditors. If this slice is zero then they get nothing.
If your not sure about the security then call the bank and ask to see it. If they can't show you then......
Just to let you know, when the bank are owed money they can get quite heavy handed with threatening letters and phone calls etc. However if they dont have a security then they cant claim any more than a slive of what is left to pay all creditors. If this slice is zero then they get nothing.
If your not sure about the security then call the bank and ask to see it. If they can't show you then......
thisislife said:
Just read this topic again...mondeoman is it your company that has gone under?
Just to let you know, when the bank are owed money they can get quite heavy handed with threatening letters and phone calls etc. However if they dont have a security then they cant claim any more than a slive of what is left to pay all creditors. If this slice is zero then they get nothing.
If your not sure about the security then call the bank and ask to see it. If they can't show you then......
Unfortunately it is. Just to let you know, when the bank are owed money they can get quite heavy handed with threatening letters and phone calls etc. However if they dont have a security then they cant claim any more than a slive of what is left to pay all creditors. If this slice is zero then they get nothing.
If your not sure about the security then call the bank and ask to see it. If they can't show you then......
75% drop in business inside 6 months, and nothing we could do about it. Downsized as much as possible, looked for alternative funding - bank loans, overdrafts, government-backed loans, nothing came to fruition and we've had to do a pre-pack as the only way to save the core business. Fingers crossed we can keep going for the duration.Now its into self-preservation and the bank is the only one that bothers me, as I have my mortgage and personal accounts with them as well (not that there's any money in them either, but thats another story).
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