Businessmen must personally honour company’s loan repayment

Two businessmen have been told they are liable to repay a business loan even though the money was paid into their company’s account.

Sam Lyon Head of Corporate & Commercial reports on this recent case.

The businessmen owned the company, which was in financial difficulties. They asked an associate to lend them £50,000, without stating if the loan would be made to the company or them personally. 

The loan agreement was drafted and stated that the £50,000 was to be repaid “when their business has the ability to do so or at a requested date”. 

In an email exchange, the businessmen asked if a “business or personal loan was better” to which the lender told them: “Whichever is easier,” adding “you wouldn’t pay tax on it either way”. 

The loan agreement was signed, and the money was paid into the company’s bank account. 

The company’s trading performance failed to improve, and the lender requested repayment of the loan from the individual businessmen. 

They claimed they were not liable as the loan was made out to the company. 

The High Court found in favour of the lender. It held that the loan agreement clearly identified the lenders and borrowers, with the latter being the businessmen and not the company. Subsequent emails between the parties did not cast doubt on that. 

It was also clear that repayment was to be made either when the company was able to do so or on a requested date. 

The Court of Appeal upheld that decision. 

If you would like more information about the issues raised in this article or any aspect of company law, please contact Sam on 01228 516666 or click here to send him an email