Director’s Loan Account Issues
A director’s loan account can be a particularly complex issue for company directors to understand. The complexities arise once a director’s loan account – often referred to as a DLA – becomes overdrawn.
The director will face no issues if the money from the DLA is repaid within nine months of the company’s year-end.
However, if it is not paid within this time and/or if the loan is £10,000 or more, this will cause a problem with the company’s shareholders and potential creditors as the account is overdrawn.
Why may a director take a loan out from a company?
- The director may borrow money to deal with personal finances
- The director may be partially paid through payroll and partially by a way of dividends
It is important for your company’s DLA to contain evidence of all transactions to avoid scrutiny by HMRC as they will keep your DLA under review through to ensure guidelines and rules are followed.
Something we often deal with at Bell & Company is directors in an overdrawn Direct Loan Account where the company has gone into liquidation.
In this case, the liquidator can demand the director repays the amount owed to pay the company’s creditors and can take legal action or make the director bankrupt.
The overdrawn DLA will also be considered an asset which can be pursued by the liquidator and even if the company has ‘written off’ the loan the liquidator can reverse this for the creditor’s benefit.
How can we help?
Bell & Company work on behalf of the director to reduce exposure risks and negotiate a settlement for outstanding debt on the DLA. Watch Terry Bell discuss Director’s Loan Accounts and the complexities surrounding DLAs once they become overdrawn over on our YouTube channel: https://youtu.be/iiQEO0R5Px4
For more information on Directors liabilities, check out our guide to a Directors Personal Guarantee.
A Guide to a Directors Personal Guarantee