Can You Negotiate An Overdrawn Director’s Loan Account Before Liquidation?

Fast Fact

You simply cannot negotiate an overdrawn director’s loan account before liquidation. The suggestion is a complete non-starter. There is no two ways about it.

Why Can You Not Negotiate An Overdrawn Director’s Loan Account Before Liquidation?

The key reason you cannot negotiate an overdrawn director’s loan account before liquidation is that the liquidator is not appointed until the company formally goes into liquidation. 

The liquidator has no legal authority to deal with the company’s assets (of which the overdrawn director’s loan account is one) until he or she is appointed. Therefore, until the liquidator has been appointed, they cannot deal with the overdrawn director’s loan account. 

The liquidator instructed by the directors in the first instance might not necessarily always be the liquidator appointed by the creditors who ultimately wind up the company. As a result, until the liquidator instructed by the directors has had their appointment formally approved by the creditors (which is the usual outcome), any negotiation over an overdrawn director’s loan account would not be binding. 

Conflict Of Interest

A liquidator who has been instructed by the directors is advising the company in the build-up to the liquidation starting. At that point in time, the directors could potentially instruct alternative liquidators. So a director who could negotiate with a liquidator before liquidation over their overdrawn director’s loan account might feel empowered to use that as a bargaining tool to negotiate the repayment of it downwards.

This would place the proposed liquidator of the directors in a conflict of interest and it would simply be inappropriate.

The duty of the liquidator is to act in the best interests of the creditors and maximise realisation. There is no place for a liquidator to compromise the position of creditors to secure their own appointment through such a process. It would be improper.