The insolvency practitioner acting as administrator has to realise all company assets including any outstanding Directors’ Loan Accounts (“DLA”).
In more detail
Director loan accounts are often run up during a financial year and then repaid by way of dividends declared at the year financial end. When a company is facing insolvency it won’t have any distributable reserves and so can’t lawfully declare a dividend in the normal way. Therefore it is important for directors to be aware of their company’s financial situation to ensure dividends are declared and posted to the DLA in the accounting records whilst the company is still solvent.
If there is any doubt about a company’s solvency the directors should stop paying dividends and instead for shareholders who work in the business pay them a proper market salary until it is clear that the company has sufficient retained profits available to safely pay dividends again
If you are a company director in this situation please call us immediately as we can help – the sooner you seek advice the more options will be available to you. Call our experts on 0800 254 5494