Director`s loan account and company solvency ?

What ethical and legal issues are there in a Director continuing to overdraw his loan account ?

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My contracting Limited company client has, like many, experienced periods of reasonably well paid contracts interspersed with ` dry` periods, and has clearly `dipped` into reserves of company cash to sustain himself. The knock on effect is that the company owes HMRC, for both CT & VAT quite significant sums, which are more or less counterbalanced by the overdrawn balance on the Directors loan account.

I expect that the patience of HMRC will wain at some point and they will start more formal action, but in the meantime what should I be saying to this client, as I am uncomfortable that day by day the situation is getting worse and the Director has no other source of funds, borrowed or otherwise, to repay his company ?

 

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By mrme89
27th Feb 2017 11:57

If the director cannot repay the company, the company is insolvent and should stop trading immediately.

You should refer your client to an IP.

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By bernard michael
27th Feb 2017 13:56

If the company is liquidated by HMRC or any other creditor the liquidators will look at the actions of the directors. If they have caused the company to fail by the imprudent DLA borrowing they could be held liable for the company debts.The liquidators will certainly ask for the money to be repaid. Also in their statutory report the liquidators could criticise the director leading to action being taken by the Insolvency Service towards banning him from being a director

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