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Bank granting a loan to an insolvent company

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  • Bank granting a loan to an insolvent company

    Is it legal for a Bank to give a limited company a loan, when it is aware that the company is insolvent
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  • #2
    BUMP, Anyone?

    I seem to remember being told years ago that it was illegal /unlawful for banks to grant loans to insolvent companies


    • #3
      Insolvent companies can continue to borrow money, so banks can continue to loan to them.
      Sometimes the money is used to recapitalise. and allow an insolvent company to meet its liabilities


      • #4
        Thank you


        • #5
          I seem to think that it isn't illegal as long as the bank is aware and any other creditors are aware the only time it is illegal is if the company borrows knowing it is insolvent but doesn't share that info.


          • #6
            Reason Im asking is I have come across a class action that is in early stages. The action relates to misselling of yorkshire/clydesdale tailored business loans, think I will need to look further into this.


            • #7
              I feel the financial industry has looked into all the different ways to fleece people of any assets they can and every time one way gets stopped they find another. There has been concern about business loans, especially to certain smaller businesses, because they may have been designed to fail because there were people in the background ready to pounce and take over the failing business at a good price. Like secured loans I think the financial institute have felt the loans don't carry the same sort of protection as normal consumer loans. I am aware that some are still protected by CCA but I think the courts view that businesses would be more aware of what they are signing up for more than the general public. I certainly know of builders/developers who took bank funding and were then surprised about how much control they had lost over how the buildings were developed. I know of one developer who was converting five barns, his business plan was to develop two and sell and use the funds from the sales to develop the rest. As far as I am aware the banks knew this but when the first two were 3/4 developed the banks pulled the funding until he started the others which would have required further funding and longer payback. It almost drove him over the brink.


              • #8
                Thanks Meellis
                Because the limited company had become insolvent, the bank said it required the existing outstanding loan and the overdraft to be consolidated into a new loan to be repaid over a 10 year term. Not given any choice in the matter.


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