What Happens In Liquidation If I Am Unable To Repay An Overdrawn Director’s Loan Account?

Fast Liquidation Fact

What happens in liquidation if I am unable to repay an overdrawn director’s loan account? If you are unable to repay an overdrawn director’s loan account, then it will not usually get paid. A director’s means, however, might be considered to check if no repayment can be made.

An overdrawn director’s loan account arises when a director has withdrawn more money from a company than they are entitled to. It is an asset of the company.

What Is The Liquidator’s Duty?

When a company enters creditors voluntary liquidation, the liquidator is required to realise the assets to enable distribution after costs to be paid to the creditors.

An overdrawn director’s loan is considered a company asset, meaning the liquidator is legally required to pursue repayment. 

What If A Director Cannot Repay An Overdrawn Director’s Loan Account?

If you are not able to repay the overdrawn amount in full, here’s what could happen:

Negotiation and Repayment Plans

In many cases, the liquidator may try to work with a director. If a director cannot pay the full amount immediately, they may agree to a repayment plan or a settlement compromise.

If a director works with the liquidator and discloses their assets, liabilities, income and expenditure, then it may well facilitate a compromise agreement.

Legal Action

If you refuse to repay or fail to stick to an agreed plan, the liquidator can bring legal proceedings against you. This might result in a County Court Judgment (“CCJ”) or enforcement action to recover the debt from your personal assets.

Personal Bankruptcy

In cases where a CCJ is obtained or a statutory demand for payment of an ODLA remains unpaid, the liquidator may petition for your personal bankruptcy. You could therefore lose your home and other material assets of value not deemed to be required for your reasonable domestic needs, including but not limited to, for a period of time, a portion of your disposable income.

Investigation Of A Director

The liquidator is also required to review the director’s conduct leading up to the insolvency. If there’s evidence that funds were taken improperly, misused, or disguised as dividends without available profit, a director might face suggestions of misfeasance or unlawful dividends.