Director's loan account

Sorry to hear about that Fred, this Q&A might get you started:

Many thanks for your post.

I feel it's very unlikely I'll make any capital gains in the next few years. So I doubt I'll be able to make any use of this.

I got the impression, albeit wrongly, that a director's account meant just that. That income and loans were interchangeable.

It's obviously better to take loan repayment and delay income until after the loan has all been paid back. Subject of course to using your personal allowance etc.

Google on all the words you can think of surrounding the issues you are facing. Insolvency is a very stressful time and the professionals in Usenet will have spent many useful hours advising people such as yourself, make the most of Google's huge database of information.

They are interchangeable in the sense that you can decide, with each payment you let your company make to you, whether it is a loan repayment or a payment of salary. But, having made the decision, you can't easily reverse it.

If it was so obvious, why didn't you do it? :-)

If you have no other income, it's always good to take at least an amount of salary equal to the personal allowance, because then you get NI qualifying years for nothing.

After that, it's best to take loans back out, unless you expect the business to make killing next year, and you would lose less tax by taking the loan out next year than this year.

But another reason to take loan first and salary later is, that if there is salary owing to you, you go to the head of the queue of creditors. Mind you, that may not apply to directors who have the power to say whether they are owed a salary...

Why are you taking a short term view?

I hope they aren't. I wouldn't be very happy if I found out that income I had earned as a director had to be paid back!

There's various pros and cons, eg. pensions.

There is another issue here. Where there any other creditors that lost money. As a director, you were unable to recoup your own investment without giving yourself preference over the other creditors. If that was the case, the Insolvency Practitioner would require the director to reinvest funds to bring the loan account to the same position it was in 12 months prior to the date of liquidation. On the other hand, the director was entitled to take a salary and no IP would object to a normal salary in proportion to the period prior to the liquiadion or at least, in the period up to the time the director realised that the financial position was untenable. Any other thoughs?

Before the position was untenable there would be no objection to paying back the loan provided this was within the terms of the loan.

It's a mute point exactly when the situation became untenable? Typically repayment of a loan would have been called a preferential payment and would not be regarded as essential to ensure the continuance of the company. Such repayments of loan may have to be paid back whereas a reasonable salary, even for a director, would be seen OK as a preferential payment.

BTW I took out a debenture in respect of one of the loans. However due to a monumental c*ck-up on part of the solicitor I engaged, I put the money into the company before lodging the debenture with Companies House. I later found out this debenture became a worthless piece of paper. It's all a saga I'd like to forget!