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NSW Company Directors Loan from Bank - What to Do under Corporations Act?

Discussion in 'Commercial Law Forum' started by Bid, 5 October 2015.

  1. Bid

    Bid Member

    5 October 2015
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    I have a private company with five company directors. Two of the directors signed a loan document with a bank about 3-4 months earlier against all the assets and business. Now, we are not able to repay the loan. Can the bank charge legal actions against the company and the rest three of the directors? If so, which Corporations Act (Section), implies it? Also what else can we do from our side to avoid the liabilities or minimize it? Which part of the Corporations Act can help us from that?
    Please Help!!

    Thank you.
  2. Rod

    Rod Well-Known Member

    27 May 2014
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    ....Also what else can we do from our side to avoid the liabilities or minimize it? .......
    Thank you.[/QUOTE]

    Surprising bank only made 2 directors sign. Is there a separate bank guarantee document you did not mention?

    Recommend you talk to the bank to see what can be done to save the situation.
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  3. Sophea

    Sophea Guest

    Hi Bid,

    Section 127 of the Corporations Act provides that a company can execute a contract or document with or without using the common seal, but that when the common seal is not used and where a company has more than one director, at least two directors or a director and a company secretary of the company can sign a contract in order to bind the company.

    Therefore, I assume that the company is bound to the loan agreement and must fulfil it. If the company can't repay the loan, then the bank is entitled to take whatever it took as security. If there is still unpaid amounts on the loan, the bank can likely sue for the remainder of the loan amount. If it succeeds in suing the company for this it may be able to enforce the debt by having the corporation put into voluntary administration or liquidation.

    Provided that the company was not trading whilst insolvent at the time that it took out the loan and the directors were acting in the best interests of the company - based on the very limited info you have provided - I can't think of any criminal offences the directors would have committed here.

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