Director Loan Accounts in Liquidation: Death by a Thousand Cuts
Director loan accounts or overdrawn beneficiary accounts can become death by a thousand cuts.
A lot of directors treat company bank accounts like their own money. Private expenses, mortgage repayments, school fees, holidays, drawings and personal tax can be paid from the company, with the thought that it will be sorted out at year end.
Sometimes that happens. Often it does not. The loan account keeps growing because no one wants to deal with the tax consequences.
If the company goes into liquidation, that loan account suddenly becomes a problem. The loan account is an asset of the company and the liquidator can call it up and seek repayment.
Arguments often change to “that was really wages”, “that was a bonus”, “that was reimbursed” or “the balance is wrong”. The difficulty is that directors may have signed off on the same loan account balance in years of financial statements and tax returns.
Director loan accounts are easy to ignore while the business is trading, but much harder to ignore once a liquidator starts asking questions.
