Converting UPE/Directors Loan to Bank Debt – The advantages

Utilising bank debt to restructure existing liabilities holds the potential to significantly change your company’s debt and equity structure. By transitioning internal liabilities, namely director’s loans and Unpaid Present Entitlements (UPE), onto the balance sheet as bank debt, you are poised to achieve multifaceted advantages and can optimise your financial architecture to suit your strategy.

First and foremost, restructuring UPE to bank debt provides a company with the ability to materialise balance sheet equity into cash, thereby freeing up capital to be deployed in areas of the business that make the most sense with respect to return on equity.

Beyond this advantage, there are other tangible operational facets to also consider. Bank debt comes with the inherent benefit of structured repayment schedules and defined interest rates. This affords your management team with a meticulous roadmap for managing financial obligations, replacing ambiguity with clarity.

Tax optimisation is another noteworthy facet of this proposition. The interest accrued on bank loans often enjoys preferential tax treatment, which has the potential to lead to substantial tax savings for your company. This avenue of tax efficiency may align with your company’s overarching financial optimisation strategy as set out by your tax adviser.

Finally, and equally as significant, is the impact that converting UPE has on ownership structure. By steering away from equity conversion and embracing bank debt, you may potentially preserve your ownership interests or at least minimise the dilution of the same. This strategic move safeguards your current stake in the company’s equity, potentially preserving your influence and position.

Such a strategic move demands thorough evaluation and expert guidance, that is, in conjunction with legal and tax advisers, which is something that cannot be overstated. Our team of seasoned debt advisory experts is poised to guide you through the intricate terrain of debt restructuring so as to ensure a comprehensive understanding of the potential benefits and implications.

In summary, the strategic restructure of director’s loans and unpaid earnings into bank debt has the potential to free up capital, optimise tax efficiencies, and safeguard ownership structure.

DISCLAIMER

This information is general in nature and does not consider your personal objectives, financial situation or needs. You should seek independent financial, legal and tax advice.