My company is insolvent but I have an overdrawn director's loan account

Published: 22/05/2023 By Hannah Duncan

As Insolvency Practitioners we regularly come across cases where there is an overdrawn Director's Loan account. We often find these directors are reluctant to get advice in the fear they will be made bankrupt or loose their homes. However, this is not necessarily the case. As with all our insolvency advice we suggest the sooner you come to us the sooner we can put your mind at rest and get a plan in place.

Any money borrowed as a Director's Loan does belong to the company and will need to be repaid even in the case of an insolvency, however, each case is different depending on the directors personal financial circumstances.

A liquidator has a duty to creditors, to ensure they are getting the best return but this does not mean they go straight for the enforcement route in order for the director to repay an outstanding director's loan. A liquidator will work with a director to come up with the most sensible way to get the money paid and distributed to creditors.

When we deal with overdrawn director's loan accounts we ask the director for income and expenditure information as well as asset liability statements as evidence that we are fully aware of the financial position of the director and the ability to repay the loan.

Options for repayment from a director could include re-mortgaging or selling of a property, monthly contributions, third party contributions or lump sums to name but a few, being transparent and cooperative in providing all the financial information to the liquidator is vital.

We also come across situations where the director is not able to pay all of the director's loan account back; as liquidators we can put all the financial information to the creditors to try to come up with a best offer solution. This could include part payment of the debt with some of the balance being written off. In order for this to happen it is paramount that a director be honest and ensure all the necessary financial information is provided.

If a director refuses to cooperate, as liquidators we have the power to go down the enforcement route and take action in the form of Bankruptcy.

Whatever your situation, it's not a disaster, we can come to an agreement for you to repay your overdrawn director's loan account in the best way possible, ensuring it is in the best interest of creditors. If you provide full disclosure and communicate with us as the liquidator, a plan can be put in place.

Watch our video on Director's Loan accounts 

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