how a director can take back unsecure loans from pvt ltd

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Querist : Anonymous

Querist : Anonymous (Querist)

23 January 2011 It looks like a dumb question by a dumb person but reality is that one director, let's say Director A (50% share holder) of a pvt. ltd. giving un-secured loans to his company which is totally run by another , director B (also 50% share holder - director). The company is under dispute so director A want to get back his un-secured loans. Please kindly advise how and what should Director A do?

CA Shailesh Kumar Bhagat

CA Shailesh Kumar Bhagat (Expert)
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24 January 2011 Director B can get back unsecured laon as per terms of the loan agreement.

Querist : Anonymous

Querist : Anonymous (Querist)

24 January 2011 Sir, there was no agreement. So what should director A as a lender should do to recover his money when A is controlling the whole company ?

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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28 July 2024 When a director of a private limited company has provided unsecured loans to the company and wishes to recover these loans, especially in the context of a dispute or when the company is run by another director, several steps and considerations are involved. Here’s a comprehensive guide on how Director A can approach this situation:

### 1. **Review the Situation**

**A. **Unsecured Loan Status:**
- **Informal Loan**: Since there was no formal agreement, the loan is considered informal or verbal, which complicates recovery.
- **Company’s Financial Status**: Assess the company’s current financial condition to understand its ability to repay the loan.

**B. **Role and Control:**
- **Director’s Role**: Determine the extent of control Director A has over the company, including decision-making powers and influence on financial matters.

### 2. **Documentation and Formalization**

**A. **Documentation:**
- **Reconstruct the Agreement**: Try to reconstruct any informal agreements or communications related to the loan. Any email correspondence, meeting minutes, or notes that indicate the loan terms can be useful.
- **Create a Formal Agreement**: Draft a formal loan agreement reflecting the terms of the loan, repayment schedule, and interest, if applicable. This helps formalize the loan and can be useful for legal and accounting purposes.

**B. **Board Approval:**
- **Board Resolution**: If Director A is in control, propose a board resolution to acknowledge and formalize the repayment of the unsecured loan. Ensure that the resolution is passed with the necessary quorum and approval from other directors.

### 3. **Recovery Process**

**A. **Request Repayment:**
- **Formal Request**: Send a formal written request to the company for repayment of the loan. This should be documented and sent through registered post or email with acknowledgment.
- **Repayment Terms**: Clearly state the amount owed, any agreed interest, and the preferred repayment schedule.

**B. **Legal Action:**
- **Legal Advice**: Consult with a legal advisor to understand your rights and options for recovery. This is particularly important if the company disputes the claim or if there are complications.
- **Legal Notice**: If informal requests do not work, issue a legal notice demanding repayment of the loan. This is a formal step that can lead to further legal action if necessary.

**C. **Consider Alternative Dispute Resolution:**
- **Mediation or Arbitration**: If disputes arise, consider alternative dispute resolution methods like mediation or arbitration to settle the issue without going to court.

### 4. **Accountancy and Financial Management**

**A. **Accounting Entries:**
- **Record the Loan**: Ensure that the loan is properly recorded in the company’s books of accounts. This involves making appropriate journal entries for the loan and its repayment.
- **Financial Statements**: Verify that the loan is reflected in the company's financial statements, and ensure it is accounted for accurately.

**B. **Impact on Shareholding:**
- **Equity Considerations**: If the company cannot repay the loan and is facing financial difficulties, consider the impact on shareholding and equity. Director A might need to negotiate adjustments or settlements related to shareholding or future investments.

### 5. **Legal Framework and Compliance**

**A. **Companies Act Compliance:**
- **Section 185 of the Companies Act, 2013**: Ensure compliance with relevant provisions under the Companies Act, which governs loans to directors and related parties.
- **Annual Filings**: Ensure all necessary filings with the Registrar of Companies (RoC) are updated to reflect any changes related to loans and repayments.

**B. **Tax Implications:**
- **Tax Treatment**: Understand the tax implications of loan repayment, including any potential impact on the company’s and Director A’s tax liabilities.

### 6. **Future Precautions**

**A. **Formal Agreements**: For future transactions, ensure that all loans are formalized with written agreements, specifying terms, repayment schedules, and interest rates.
**B. **Proper Documentation**: Maintain proper documentation for all financial transactions and agreements to avoid similar issues.

### Summary

1. **Document and Formalize**: Create a formal loan agreement and board resolution to formalize the unsecured loan.
2. **Request Repayment**: Send a formal written request for repayment and consider legal options if necessary.
3. **Seek Legal Advice**: Consult with a legal advisor to navigate any disputes or complications.
4. **Ensure Compliance**: Adhere to legal and accounting requirements, including compliance with the Companies Act.

By following these steps, Director A can systematically address the recovery of unsecured loans and ensure that proper procedures are followed. Consulting with legal and financial professionals will provide additional guidance tailored to the specific circumstances of the dispute.