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Loan forgiving

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28 July 2009
Issue: 4216 / Categories: Forum & Feedback , Business , Companies , Employees , Income Tax
A company shareholder is considering waiving the repayment of a loan that he made many years ago to a close company. He would wish a bank guarantee to be removed.

Many years ago Mr X made a loan to a company when he was its sole shareholder.

The repayment of the loan is subordinated to that of the bank and is unsecured.

Mr X also gave a personal guarantee in respect of the bank borrowings.

After long periods of loss the company is now profitable but the loan cannot be repaid for many years.

The company has substantial trading losses carried forward.

Mr X is elderly and now owns only a small percentage of the share capital.

He is considering forgiving the loan and gifting the shares to the management team who own all the other shares.

The company remains close. He would however seek to remove his bank guarantee.

If the loan is forgiven then the company accounts would reflect this by a credit in the profit and loss account.

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