This article is for you if:
You are facing a liquidator’s demand for repayment of an overdrawn director’s loan account.
You are considering whether expenses, dividends, salary or money owed to you reduce the balance.
An issue has arisen because the accounts show a debt that you believe is wrong or incomplete.
The quick answer: an established overdrawn director’s loan is normally an asset of the company that a liquidator can investigate and seek to recover. But the figure in the last accounts is not always the final answer. The balance, classification and any valid set-off must be checked against the underlying records.
A loan-account balance is not just a tax entry
In liquidation, the liquidator controls company assets and investigates what is owed. Official guidance includes an overdrawn director’s loan among recoverable debts.
Start with the ledger.
The liquidator may compare accounts, ledgers, statements and earlier explanations. Official guidance warns that accounts alone may not establish the balance.
Common complex scenarios
Situation | What must be tested |
|---|---|
The company reimbursed a lump sum of expenses | Match each component to an invoice, proof of personal payment and business purpose |
A withdrawal was labelled a dividend | Check distributable profits and approval; an unaffordable dividend may become repayable |
Company money entered a personal account before paying a supplier | Trace both sides; the account route alone proves neither business purpose nor personal benefit |
You also lent money to the company | Verify the credit and whether insolvency set-off rules apply; do not net unrelated claims casually |
A liquidator can pursue an ordinary debt. Separately, section 212 of the Insolvency Act 1986 addresses misapplied or retained company property, misfeasance and breach of duty.
Do not collapse them.
A letter should identify the basis, amount and transactions. If it does not, ask for the calculation while preserving the deadline.
What if the accounts are wrong?
Saying “the accountant posted it there” is rarely enough. Identify the specific entry and the better treatment, then produce the record that supports it.
A single transfer can require split treatment. The supported part may be an expense reimbursement while the unsupported balance remains on the loan account.
This is both a financial and legal exercise. Reconstruct the balance and classifications first. Then separate what the records prove, what is disputed and what remains unresolved in the response.
Can money the company owes you be set off?
Sometimes. Current Official Receiver recovery guidance explains that insolvency set-off applies where the required mutual credits, debts or dealings exist. It is not permission to subtract any amount you believe the company owes you.
The credit must be real, mutual and supported. Expenses, salary, distributions and loans can have different treatment.
Build a two-sided evidence trail
Use one row for each challenged transaction. Record the allegation, source bank entry, receiving account, explanation, supporting invoice or approval, onward movement, accounting treatment and status.
Supported. Partly supported. Unresolved.
You can upload Excel files, invoices, statements and the liquidator’s schedule to Unwildered. Caira can extract figures, compare lists and help draft a neutral response matrix. It cannot certify that the balance is correct, create legal privilege or decide whether a claim should be admitted.
Avoid sending hundreds of unexplained files. Keep originals unchanged and use a smaller, referenced set.
Cooperate without guessing
Directors have duties to provide relevant company information and answer the office-holder’s questions. The Insolvency Service’s current cooperation guidance explains that failure to cooperate can have serious consequences.
Accuracy is cooperation. Speculation is not.
If evidence is missing, say what has been checked, what remains unresolved and who may hold the record. If a written demand could lead to personal recovery, court proceedings, disqualification or allegations of dishonesty, do not make speculative admissions or describe an unsupported explanation as fact.
Unwildered can help organise the first factual pass and identify arithmetic differences. Keep the ledger’s source-backed facts separate from the legal response and from any settlement proposal.
Frequently asked questions
I cannot afford to repay the balance. Does that prove misconduct?
No. Ability to pay and whether the debt exists are different questions. Do not ignore the demand: check the claimed balance, state what is disputed and respond separately on affordability if necessary.
Can I say the company owed me expenses without receipts?
You can explain missing records honestly, but an unsupported assertion may carry little weight. Reconstruct from supplier copies, emails, card statements and property or project records where possible.
Does paying the money back end every issue?
Repayment may reduce the debt, but it does not automatically resolve tax, director-duty, disqualification or dishonesty questions arising from the original conduct.
The final accounts show the wrong balance. Am I stuck with it?
Not necessarily. Identify each disputed entry and provide primary evidence. A broad disagreement is weaker than a transaction-by-transaction reconciliation.
Should I send my whole personal bank account?
Start with relevance. Provide the receiving-side entries needed to explain the challenged transactions, preserve context and avoid disclosing unrelated personal activity without a clear reason.
This article is general information, not legal, financial, tax or medical advice. Insolvency outcomes depend on the documents and circumstances.
