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Recovery of overdrawn director’s loan account

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Our lawyers frequently advise clients who are facing a potential claim by Liquidators/Administrators seeking to recover overdrawn loan accounts.

When a company is making a profit, as a tax saving mechanism, directors are regularly advised by their accountants to receive a small salary from the company and thereafter take drawings from the reserves from the past and current years. From time to time directors will also withdraw money from the company by way of a “director’s loan”, which can be used to finance a major personal purchase such as a deposit for a house. Depending on an individual’s circumstances a director’s loan can also be considered as a tax saving mechanism.

However, the difficulty arises when the company stops making a profit and is subsequently wound up. What happens to the director’s loan?

When (why) would a director need this service?

If your a director of a company, that is either about to be wound up or has already gone into liquidation, and there is an overdrawn directors loan account, then you may wish to obtain legal advice as to what your options are in connection with paying back the overdrawn directions loan account.

Alternatively, if you are being chased by the Liquidator/Administrator for the repayment of the overdrawn directors loan account, you should seek legal advice to see if there is any prospect of challenging the sums sought from you.

How does this process work?

Due to the fact that the director’s loan will be shown in the annual accounts of the company, it is one of the first debts the Liquidator/Administrator will seek to recover.

The process usually starts with the Liquidator/Administrator sending a letter of claim demanding that the sums owed to the company be repaid. If a resolution cannot be reached in respect of the proposed claim the Liquidator/Administrator will normally issue court proceedings in accordance with part 7 of the Civil Procedure Rules.

Can I challenge a claim for recovery of a director’s loan?

You may be able to challenge a claim for the recovery of the director’s loan; however, it can be quite difficult to do so. In many instances a director will seek to reach an amicable resolution with the Liquidator/Administrator.

That being said, we have compiled a list of possible challenges below. However, please note that this list is not exhaustive and you should contact our lawyers so that we can provide you with advice tailored to your circumstances:

  • That the company’s balance sheet is incorrectly recorded (however beware when using this as a defence as it could give rise to a misfeasance claim against you);
  • The debt can be offset against monies owed to the director by the company. However, this can only be in exceptional cases due to the mandatory set off provision as set out in Rule 14.25 of the Insolvency Rules 2016;
  • In instances where the director has given a personal guarantee there may be a possibility that the amount owed in respect of the director’s loan can be set-off and/or substituted against the guarantee. However, the right to subrogate must first be established;
  • The Liquidator/Administrator is time barred from doing so; and
  • There has been a procedural or technical error in respect of the proposed claim

If a director wishes to consider his/her options in relation to challenging any potential actionlegal advice should be sought at an early stage and preferably even as early as when the director is dealing with the Liquidator or Administrator, by completing questionnaires or attending interviews. 

What should people do before calling

If you are contacted by the Liquidator or Administrator, you should explain that you wish to seek legal advice before reverting to them. You should get in touch with us immediately thereafter.

Is it expensive? What are the likely costs?

We will provide you with an estimate of costs at the outset based on the type of work required.

Our lawyers have extensive experience in advising clients who are faced with claims for recovery of a director’s loan and have successfully defended clients who were subjected to such proceedings. Our lawyers will be able to provide you with bespoke and cost effective advice tailored to your circumstances.

Meet the Recovery of overdrawn director’s loan account team
Ray Crudgington
Managing Partner
greenwich
02083054224
ray.crudgington@grantsaw.co.uk
Maria Lati
Partner
Head of Residential Property
blackheath
02083054229
maria.lati@grantsaw.co.uk
Mike Clary
Partner
Head of Family
greenwich
02083054237
mike.clary@grantsaw.co.uk
Kalpa Prajapati
Partner
Head of Private Client
blackheath
02083053536
kalpa.prajapati@grantsaw.co.uk
Mario Savvides
Partner
Head of Commercial Property
greenwich
02083053531
mario.savvides@grantsaw.co.uk
Sarah-Kate Jackson
Partner
Head of Litigation
greenwich
02083054236
sarah-kate.jackson@grantsaw.co.uk
Adina-Leigh Collins
Litigation
Solicitor
greenwich
02083053556
adina-leigh.collins@grantsaw.co.uk
Aimal Gram
Commercial Property
Solicitor
greenwich
02083053524
aimal.gram@grantsaw.co.uk
Aisha Mohammed
Residential Property
Solicitor
greenwich
02083054228
aisha.mohammed@grantsaw.co.uk
Aishat Balogun
Aishat Balogun
Family
Solicitor
greenwich
02083054214
aishat.balogun@grantsaw.co.uk
An Le Tran
Commercial Property
Professional Support Solicitor
greenwich
02083054226
anle.tran@grantsaw.co.uk
Angus Young
Litigation
Solicitor
greenwich
02083054225
angus.young@grantsaw.co.uk
Atifha Aftab
Atifha Aftab
Family
Solicitor
greenwich
02083054238
atifha.aftab@grantsaw.co.uk
Bimal Kotecha
Litigation
Solicitor
greenwich
02083053523
bimal.kotecha@grantsaw.co.uk
Charlotte Mandy
Charlotte Warren
Private Client
Solicitor
blackheath
02083054231
charlotte.warren@grantsaw.co.uk
Claire Mac Mahon
Litigation
Solicitor
greenwich
02083053537
claire.macmahon@grantsaw.co.uk
Deborah Taite
Residential Property
Solicitor
blackheath
02083053542
deborah.taite@grantsaw.co.uk
Emily Pearce
Residential Property
Solicitor
greenwich
02083053526
emily.pearce@grantsaw.co.uk
Georgia Beales
Litigation
Paralegal
greenwich
02083054206
georgia.beales@grantsaw.co.uk
James McKimm
James McKimm
Corporate and Commercial
Solicitor
greenwich
02083054217
james.mckimm@grantsaw.co.uk
Jeremy Brooks
Jeremy Brooks
Private Client
Solicitor
blackheath
02083053534
jeremy.brooks@grantsaw.co.uk
Joanna Godden
Notary Public
Notary
greenwich
02083083535
joanna.godden@grantsaw.co.uk
Kim Whitaker
Kim Whitaker
Corporate and Commercial
Head of Corporate and Commercial
greenwich
02083053539
kim.whitaker@grantsaw.co.uk
Laura Danquah
Compliance Manager
greenwich
02083054222
laura.danquah@grantsaw.co.uk
Lauren Smith
Employment and Family
Paralegal
greenwich
02083053543
lauren.smith@grantsaw.co.uk
Mandeep Clair
Family
Solicitor
greenwich
02083054235
mandeep.clair@grantsaw.co.uk
Michael Pope
Employment
Consultant Solicitor
greenwich
02083053540
michael.pope@grantsaw.co.uk
Michelle Pinnington
Michelle Pinnington
Residential Property
Solicitor
greenwich
02083054216
michelle.pinnington@grantsaw.co.uk
Noella Gooden
Employment
Solicitor (Australian qualified)
greenwich
02083053543
noella.gooden@grantsaw.co.uk
Raj Waghela
Raj Waghela
Residential Property
Solicitor
greenwich
02083053529
raj.waghela@grantsaw.co.uk
Randeep Thethy
Randeep Thethy
Residential Property
Solicitor
greenwich
02083054209
randeep.thethy@grantsaw.co.uk
Ruggero Pesciatini
Ruggero Pesciatini
Corporate and Commercial
Paralegal
greenwich
02083054220
ruggero.pesciatini@grantsaw.co.uk
Sarah Conner
Sarah Conner
Private Client
Solicitor
blackheath
02083054234
sarah.conner@grantsaw.co.uk
Simran Lalli
Simran Lalli
Employment
Solicitor
greenwich
02083054208
simran.lalli@grantsaw.co.uk
Susan Collins
Commercial Property
Solicitor
greenwich
02083054200
susan.collins@grantsaw.co.uk
Tatiana Zenina
Tatiana Zenina
Private Client
Solicitor
blackheath
02083054239
tatiana.zenina@grantsaw.co.uk
Trisha Djemal
Trisha Djemal
Residential Property
Consultant Solicitor
blackheath
02083053546
trisha.djemal@grantsaw.co.uk
Tyrone Grant
Residential Property
Head of Leasehold Enfranchisement
blackheath
02083053522
tyrone.grant@grantsaw.co.uk
Denise
Accounts Staff
greenwich
02088586971
enquiries@grantsaw.co.uk
Jayne Lye
Support Staff
Office Manager
greenwich
02083054204
jayne.lye@grantsaw.co.uk
Jamie
Support Staff
Head of IT
greenwich
02088586971
enquiries@grantsaw.co.uk
Kasia
Accounts Staff
greenwich
02088586971
enquiries@grantsaw.co.uk
Michael Tobin
Michael Tobin
Support Staff
Marketing and Business Development Manager
greenwich
02083053550
michael.tobin@grantsaw.co.uk
Sue Holness
Support Staff
Customer Services
greenwich
02083054221
sue.holness@grantsaw.co.uk