A private company has some loans from its directors.The ownership of the Company is going to change. The new owners coming in insist that the loans be adjusted against general reserves / profits of the Company as the entity dose not have enough liquid funds to pay off the loan.
I could not find any specific provision in the Companies Act 1956 allowing or disallowing this. Please help.
Regards,
Loan taken from directors is a liability and accumulated profits is also a liability of the company. How one liability can be adjusted against another liability is not clear. Do you want to write off the loan taken from directors? In that case you will have to take NOC from directors and then credit the amount to P&L under the head 'other income'. But this may create a problem in assessment of personal IT returns of the directors who had given loan.
CAclubindia
