Understanding An Overdrawn Director’s Loan Account In Liquidation
What Is An Overdrawn Director’s Loan Account?
An overdrawn director’s loan account is simply an asset of a company. It is money owed by a director to the company.
It is like being overdrawn at the bank. However, instead the director is overdrawn with the Company.
Does Liquidation Write Off An Overdrawn Director’s Loan Account?
No, liquidation does not write off an overdrawn director’s loan account. It remains an asset of the company and liquidation does not change that position.
What Is The Liquidator’s Duty?
The liquidator has a duty to realise all assets of the company in liquidation, including an overdrawn director’s loan account.
If the director personally paid the liquidator’s bill to put the company in liquidation, that may reduce the level of the overdrawn director’s loan account but it does not eliminate it if the loan account was greater than the liquidator’s invoice.
What Happens If The Director Cannot Repay The Overdrawn Director’s Loan Account?
If the director cannot repay the overdrawn director’s loan account, then it will go unpaid.
However, the ability to repay the loan account is not only determined by the level of a director’s bank balance. Other assets, such as cars and property, can be taken into account by the liquidator.
Will A Director Lose Their Home Over An Overdrawn Director’s Loan Account?
Whilst it usually does not happen, a director can lose their home over an overdrawn director’s loan account.
Is It The Liquidator’s Decision On How Much A Director Has To Repay?
It is not ultimately the liquidator’s decision on how much a director has to repay of an overdrawn director’s loan account. The liquidator is not the judge and jury over this matter.
The liquidator acts for the company to fulfil a statutory duty set out in legislation. However, where a director disputes the amount claimed by the liquidator, it is either resolved by agreement or by legal proceedings at court.
How Much Should A Director Offer To A Liquidator To Settle The Matter?
The amount a director should offer to a liquidator to settle and overdrawn director’s loan account depends on the facts of the case and the real ability of the director to pay it.
Ultimately, it is a matter of negotiation that typically has two aspects: 1) firstly, the amount of the overdrawn director’s loan account and 2) secondly, the ability of a director to make payments for it.
Why Does A Liquidator Pursue A Director If Creditors Are Not Pressing For Action?
A liquidator has a duty to deal with the overdrawn director’s loan account as an asset of the company and this duty has nothing to do with the activities of creditors in pressing for action.
It makes no difference if creditors are banging down the door demanding action be taken or if creditors are silent, the duty to address the matter on the part of the liquidator remains.
The Company Paid Tax So Why Would A Director Personally Pay Tax On An Overdrawn Director’s Loan Account?
Whilst a company may have paid corporation tax on an overdrawn director’s loan account when it is only partly repaid by the director, any written off or released balance is treated as a director’s income and income tax is triggered on the director personally as a result.
