Will Liquidation Mean I Have To Repay An Overdrawn Director’s Loan Account?
Fast Liquidation Fact
Will liquidation mean I have to repay an overdrawn director’s loan account? Yes, if your company goes into liquidation and you have an overdrawn director’s loan account, you will be asked to repay it. It is an asset of the company. Whether you can repay it is a different question from whether you are liable to do so.
If you dispute the amount claimed, then you may reduce and potentially even eliminate the liquidator’s claim to repayment of an overdrawn director’s loan account.
What Is An Overdrawn Director’s Loan Account?
An overdrawn director’s loan account is a record of the transactions between a director and the company.
If a director has received more money than they were either entitled to (through a combination of salary, dividends, monies they lent to the company or expenses they personally incurred for the company’s benefit), then the director’s loan account is overdrawn.
Why Does An Overdrawn Director’s Loan Account Matter In Liquidation?
In a creditors voluntary liquidation, the liquidator is appointed to realise the assets, pay the costs of liquidation and for any surplus to be distributed to creditors.
As an overdrawn director’s loan account is an asset of the company, just like any other asset, the liquidator has a duty to realise it. The fact that it is the asset to recover from a director (who may have instructed the liquidator to assist with the liquidation) is irrelevant.
A director with an overdrawn director’s loan account will be asked to repay it. It is as simple as that.
How Is An Overdrawn Director’s Loan Account Amount Calculated?
An overdrawn director’s loan account amount is calculated by reference to the company’s books and records.
If the amount claimed by the liquidator is disputed by the director, then the liquidator will usually need to review the company’s financial records, bank statements, and bookkeeping entries to establish the level of the overdrawn director’s loan account balance. If required, the liquidator may look to reconstruct the company records to examine them in detail.
What Happens If I Can’t Repay?
If a director cannot repay an overdrawn director’s loan account in part or in full, the liquidator might consider their means with consideration of their income, expenditure, assets and liabilities to see if any payments towards it can be made.
A liquidator will often look to settle the matter through a written settlement agreement which incorporates a repayment plan. However, if no agreement is reached, they can take legal action as it is not the liquidator’s decision ultimately as to the amount of the overdrawn director’s loan account that has to be repaid by the director. It is the role of the court through legal proceedings if an agreement cannot be reached.
However, if the liquidator were to obtain a court judgment against a director for a sum to be paid, then this could culminate in a director’s personal bankruptcy. This could result in a director losing their home in an extreme case.
Can An Overdrawn Director’s Loan Account Be Written Off?
An overdrawn director’s loan account cannot be written off without the approval of the liquidator, who must consider the interests of creditors first and foremost.
If a director really does not have any means to repay any of their overdrawn director’s loan account, then a liquidator may write it off, but this is likely to have income tax consequences for a director and therefore not the end of the matter.
