How will the liquidator recover an overdrawn loan account?
If we liquidate your company, we’ll look at your company’s accounts, books and records to see if any parties owe the company money. We’ll ask for information from your company’s accountant to work out if any customers owe the company money, for example, and also whether you, or any of the directors owe the company money.
If it looks like you have an overdrawn director’s loan account, firstly we’ll talk to you to confirm that the money is owed. We sometimes find that the records don’t show all the money that a director has put in, or costs that they’ve paid for personally. If you can prove this is the case, then the amount owed may be less than we first thought, or possibly not owing at all.
If however there is money owing, you will be asked to repay it, in the same way that anyone else who owes the company will be. Once the money is repaid, this is likely to be the end of the matter.
On the other hand, if your director’s account is in credit (if you are owed money by the company), you’ll be treated just like any other creditor. If recoveries are made and there is a dividend to be paid out, you will receive a pro-rata payment along with the other creditors.
Overdrawn director’s loan accounts: does the full account need to be repaid?
If you owe the company money and you are willing to pay the money back, but can’t afford to, and can prove this, in some cases we will be prepared to settle for a lower amount to be repaid. This will depend entirely on the circumstances of the case, however and whether it is in the best interests of the creditors.
For example, we would often be willing to give a discount on the total amount repayable if it can be agreed and repaid quickly. Conversely, paying it back over a protracted amount of time is likely to mean repayment in full and if a court order was required, court costs and interest may also apply.
What powers do liquidators have to recover director’s loan accounts?
Under the Insolvency Act, as liquidators we are able to reverse transactions made by your company if they are not in the interest of all the creditors, or if they are to the detriment of the company.
For example, if a loan was repaid back to you as director before entering liquidation, we would need to have this overturned and demand that the money be paid back to the company to be made available for all the creditors.
Similarly, any director’s loans which were written off before liquidation would need to be repaid to the company.
If, as director, you were unable, or wouldn’t repay any money owed to the company, it may be reason for the Insolvency Service to seek to disqualify you from acting as a director in the future. This could be from anywhere between 2 to 15 years.
Just having an overdrawn loan account however, is certainly no reason for disqualification itself. This would depend on the director’s actions and if those actions were to the detriment of creditors. Find out more about director’s investigations and director’s disqualifications.
How do we deal with an overdrawn director’s loan account?
Our advice is to be upfront about any overdrawn loan accounts. If you can provide us with the information prior to your company being placed into liquidation, we can negotiate an acceptable repayment plan which leaves you knowing where you stand before liquidation.
Although the same can be done after liquidation, we find that clear communication and negotiation prior to formal insolvency allows you peace of mind, and lessens our workload!
Our view is that often the best way to recover funds for the creditors is to work with the directors to resolve matters quickly and amicably.
Have we answered all of your questions? If you would like to talk to one of our business rescue experts directly, get in touch.
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How much will it cost to liquidate your business?
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Liquidation is likely to crystallise any outstanding personal guarantees, so you will need to consider carefully how to deal with these prior to liquidating. There are options available that we are happy to discuss, but it is important to understand the potential effects of the guarantees prior to liquidating.
We can organise attendance at your premises to assist with staff redundancies. There is an added charge of £350 for this (already included in your quote). We find that it can really help staff move their claims forwards, and understand the procedure better. Where possible, we work with the local Job Centre so that exiting staff are aware of training opportunities and the most efficient ways of making benefit claims.
Buying assets from the liquidator
Please contact our office or book an appointment if you want to buy assets back from the liquidator. Once we have details of your assets, we can organise independent valuers to review (either on paper or by site visit, depending on the asset types), and we can then agree a fair figure for the purchase.
It may be possible to pay for the assets over a period of time, though it is likely that security would be required.