Liquidator role with overdrawn directors loan accounts?

Liquidator role with overdrawn directors loan accounts? A licensed insolvency practitioner in the UK once appointed a Liquidator in either a ‘compulsory or voluntary liquidation’ is to collect and realise its assets and then distribute them to the company’s creditors subject to a surplus being available.

That seems clear. However, many Insolvency Practitioners employ unqualified sales associates to access insolvent clients. That is a problem in that the over-promise on important issues later turns sour when the Liquidator must carry out their duty.

However, they must investigate once appointed.

What Liquidators look at?

  • The roles of the directors before their appointment. 
  • How did they conduct themselves?
  • Did they trade knowingly while insolvent?
  • Has money been withdrawn without accounting for tax?
  • Have illegal dividends been paid when no profits earned?
  • Have dividends been paid to directors who are not shareholders?
  • Has there been any false accounting?
  • Intent not to pay creditors?
  • And so it goes on.

However, many directors do not understand Liquidator’s role.

A liquidator, once appointed, represents the creditors. Helping them retrieve their lost money.

So we often hear from directors such comments as:

  • When I first met the Insolvency Experts. ‘They told me not to worry about my overdrawn director’s loan account’.
    • ‘Indeed, an overdrawn director’s loan account is an asset of the company. The Liquidator must perform a duty to collect that money back for the company to pay creditors back. Do not fall for a trick to entice you to sign up with an insolvency firm, with a salesman being economical with the truth’.
  • Another trick is chasing directors a year or more later for an overdrawn account once the IP has finished billing.
    • ‘As a director, you should be aware of a director’s loan. Ensure before the liquidation that the account is accurate so that you may disclose the debt to the IP and arrange a satisfactory payment. Debt will not go away if owed to an insolvent company unless agreed legally with the appointed Liquidator in writing’.

Take care when appointing an IP to assist you and your company.

If your director’s loan account remains overdrawn?:

  • Ask your accountant to check it over, ensuring its accuracy and all transactions are accounted for correctly. 
    • ‘It may be your account is overstated, but this needs to be actioned before the liquidation’.

Once you have agreed on your account’s accuracy, then disclose it correctly in the statement of affairs.

They must agree with the Liquidator on repayment, rather than hiding or waiting for a letter a year later.

For further reading on Directors Loans and liquidation. Please read;

Honesty by you at this point can save much stress and avoid possible disqualification as a company director.