Non-recognisable debt removed from financial record ?
Non-recognisable debt removed from financial recordA membership and elected board based organisation has had a debt on it's
financial records for approximately 5 yrs and have been slowly paying it
back each month. A new board gets elected approx 12 years ago and for an
undeterminable reason (probably dislike for the person receiving repayment)
investigates the reason for the debt and substaniating paperwork. They
cannot find either. Repayments are stopped and debt removed from financial
books.
Debtor (who is also a member of this Org) gets shitty, Org states to give
substantiating paperwork to verify debt and happy to payback. No paperwork
can be supplied by debtor either. Debtor eventually gives the debt to debt
collecting company who send letter of demand to Org. Org refers letter from
debt colectors to lawyers, who advise Org not to pay payments and lawyers
contact debt collecting company and advise their client (debtor) must
provide substaniating documents to prove debtor before they will advise Org
to recommence payment.
Is the Org either financially or legally correct in removing the debt from
their financial records? Pointers to laws, accounting principles, or
supporting judgements required please.
And no, I am neither the debtor or on the board of this Org. Just an
interested Org member who is looking for a possible solution or outcome.
Removing a debt in this manner would require some explanation in the
Annual Accounts in question, and should have been backed up by a
resolution in the organisation's minute book. If no valid reason was
given for removing the debt (eg the debt was not valid to begin with),
then the accounts would not provide a true and fair view for that year
(ie it would be contrary to normal accounting principles). If the debt
is trivial, no one would normally fuss.
As the incident happened 12 years ago, the detailed accounts
information for that year has probably been lawfully disposed of. The
minute book for that should still be available, and it would be
extremely unlikely that all copies of the statement of accounts in the
years in question as issued to members would have been destroyed. The
absence of a resolution in the minute book authorising the removal of
the debt in the accounts would cast serious doubt on the validity of
that action. This is especially so if there was no proper explanation
in the annual accounts or Treasurer's report at that time.
However whether the debt is still on the books or otherwise is
immaterial. If the money is owing and shown in the accounts at the
time as being owing to X, this should provide the required evidence to
claim repayment. Writing it off in the books would not affect the
situation. However 'limitations' will most probably apply which would
prevent recovery if the debt has been dormant for 6 years (or what
ever the period is in the state in question).
Having said that, there would seem to be nothing to stop the
organisation in 'general meeting' directing that the debt be
reinstated in the accounts and that it be paid off. Of course, one
would need to 'bag the numbers' to pull this off, and it would be most
helpful if the current President and Treasurer were sympathetic.