Directors Loan Account

Andrew Bailey, one of our Insolvency Partners here at turpin barker armstrong has recorded an informative video on Director Loan Accounts and has some tips you may find helpful:

If you are tempted to take a Directors Loan to tide you over – beware!

If a director of a company (or close family member), takes money from the company that is not salary, dividends or an expenses repayment it is very important to keep clear records of what money has been borrowed from or paid into the company.  These records are known as a Directors Loan Account or DLA.

An overdrawn DLA happens when a director takes out more money than they have put in.  These overdrawn amounts are recorded on the balance sheet as a company asset until it is fully re-paid.

If your company is struggling financially and you have an Overdrawn Directors Loan Account, this could become a personal issue for you. Even if your company writes off your DLA.

If a company goes into liquidation, a liquidator would be appointed.  It would be the liquidators duty to raise as much money as possible, by liquidating the company assets, in order to pay back the companies debts.  If you have an overdrawn Directors Loan Account the liquidator would look for repayment. If you are unable to pay this it could lead to your own bankruptcy. However, if you provide full financial disclosure to the liquidator a plan could be drawn up which may include options such as part payment of the debt, lump sum payments, regular monthly payments. Income and expenditure will need to be provided as well as an asset liability statement in order to ensure creditors are getting the best return.

Speak to a professional as soon as possible.

The Corporate Insolvency Test

A company is considered to be insolvent under UK law if it is unable to pay its debts as they fall due or if liabilities exceed assets - take our Corporate Insolvency test which will asses what options may be the most appropriate given the unique circumstances of your business.  

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