Liquidation: Directors Loan in Credit

[ASB]

What money did you owe HMRC. If it was income tax, NI or VAT it wasn't really yours to pay out to anyone except HMRC..

True, but it is a question of which came first and if the op can show they were dealt with first in first out that should be ok.

[ASB]

The simple answer is that when we had some cash it was paid to me, along with a variety of partial repayments to other people, it wasnt ONLY paid to me, HMRC for example also got paid large chunks(circa 5k at a time) we were trying to make things work.

Ok. Fair enough. I think the case you need to make is:-

1) The funds credited to the dca should not have been.
2) They should have been credited to a deferred wages account.
3) they were being paid to you on an ad hoc basis as and when possible.

That they were unpaid wages might possibly be key, they could have been accounted for better though. Employees wages are preferential (or were).

Of course if you didnt have a contract of employment it may be more difficult to argue.

Are you able to discuss this, and the accounting treatment, with the old accountants.

If you are unable to agree with the liquidator you may be able to comvince the judge if you want to dig your heels in. The liquidators powers are limited. But he can seek court approval for actions.

Hope this may be of some limited help. You basic argument needs to be prior claim.

Edit: Forgot to mention. If you were paying wages to a director when it was known insolvent then these mat be attacked, thus any wages paid or "booked" after the date at which liquidation was decided are at risk of being disallowed. It may be the case that the 3,800 paid, reducing the DCA, is mapped onto those.

[eek]

The simple answer is that when we had some cash it was paid to me, along with a variety of partial repayments to other people, it wasnt ONLY paid to me, HMRC for example also got paid large chunks(circa 5k at a time) we were trying to make things work.

What money did you owe HMRC. If it was income tax, NI or VAT it wasn't really yours to pay out to anyone except HMRC..

[thomasjoyce]

The key question is why the dca went from 12 to 8.2

The simple answer is that when we had some cash it was paid to me, along with a variety of partial repayments to other people, it wasnt ONLY paid to me, HMRC for example also got paid large chunks(circa 5k at a time) we were trying to make things work.

[ASB]

Ok, you loaned the company 12k. By not actually drawing the salary.

During the last 6 months of trading some of this was repaid to you. Other creditors were not being paid.

That is what seems to have happened.

The liquidators view will be that you were giving yourself preference whilst struggling and that should not have happened.

I would seek advice before repaying. A lot more details would be required to know how solid the liquidators claim is. Probably fairly solid.

The key question is why the dca went from 12 to 8.2

[thomasjoyce]

Hi Everyone, thanks for the responses. Ill try and explain a bit more to help answer your questions.

1) The company was actually owed nearly ALL the money it was due to HMRC, but we were really struggling to collect it from customers. I don't know the EXACT numbers off hand, but it was circa 40k owed, 40k outstanding from clients. I tried several times to come to an agreement with HMRC on paying them back, but I was late on a few payments again due to clients not paying and on the third attempt they basically said no sorry(I don't blame them), too little too late. Up until that point as far as the directors knew it was a going concern. This is well documented in all our board meetings, and I am fully aware I did nothing underhand or devious.
2) From comments above I completely understand that it is commonplace to turn unpaid wages into directors loans, its just that its unusual to end up in a situation where money that started of as your wage become a liability against you rather than for you.
3) I was a director, and owned 25% of the company, but I was also an employee with a contract, as the Managing Director. the other 75% of the company was owned by a number of individuals. as mentioned originally.


All that said I do need to decide whether to pay back this money. Its £3800 payable in installments even(apparently). Getting a lawyer to look into this will probably add 50% to the bill, which is why I am crowdsourcing the solution.

The biggest question to answer is whether paying back this money is linked to any sort of disqualification process? My best assumption is that if I pay the money the liquidator will be satisfied from a financial point of view, but that wont stop him coming after me if he thinks I operated the company wrongly by taking it. But if dont pay them back they will try and chase me for the money through legal means, my worry is that in order to prove I owe it they may well have to flag it up higher, and that could cause even more eyes to look on the case? (Maybe I am a bit paranoid)

One last question, if anyone knows this, given the company had 4 directors, all of whom were involved on a monthly basis( with well documented board meetings, and professional accounting firms looking after our numbers: so we are sure that no one was fiddling the books or doing anything untoward) would all the directors be under fire? (This could give me some leverage to approach the other directors to take upon them some of the burden of the money.

Thanks everyone!

[SueEllen]

I think a director's salary might be treated differently from a regular employees salary, but I'm speculating. He said that it was involuntary insolvency thanks to HMRC. That doesn't happen overnight, so clearly the directors knew they were in trouble and unable to pay the tax bill at the time they (or he) paid themselves.

Actually I agree with this.

Directors and other office holders aren't generally employees in SMEs so if the company has financial difficulties they don't draw a salary. Owning HMRC money falls into this.

[VectraMan]

Salary would be allowed though I'm pretty sure. Unless the company was insolvent before salary was paid.
But yes it needs professionals. And if the OP isn't happy with the accountant appointed he'll need legal I reckon.

I think a director's salary might be treated differently from a regular employees salary, but I'm speculating. He said that it was involuntary insolvency thanks to HMRC. That doesn't happen overnight, so clearly the directors knew they were in trouble and unable to pay the tax bill at the time they (or he) paid themselves.

[Lance]

If I read that right he was paid some money "the directors loan reduced from 12,000 to 8200" but as it was in the last 6 months of trading before going bust they want that money back; paying the director off whilst there are other creditors wouldn't be allowed.

One for the professionals I would think.

Salary would be allowed though I'm pretty sure. Unless the company was insolvent before salary was paid.
But yes it needs professionals. And if the OP isn't happy with the accountant appointed he'll need legal I reckon.

[VectraMan]

If I read that right he was paid some money "the directors loan reduced from 12,000 to 8200" but as it was in the last 6 months of trading before going bust they want that money back; paying the director off whilst there are other creditors wouldn't be allowed.

One for the professionals I would think.

[NotAllThere]

The money paid to you was treated in the accounts as a director's loan instead of salary - is that a good summary of the issue?

[Lance]

Declaring your unpaid wages as directors loan is fairly standard. So I wouldn't worry about that. The company owed(owes) you money.
There is more going on than you are telling/know. How has the company gone from owing you money to you owing it money? You 'loan' would not make you a preferential creditor so it may well be that other debts outstripped the money you were owed.
I'd ask for a full breakdown of all calculations to see what is going on.
It could be that all shareholders have taken a hit and yours is smaller due to the outstanding loan.
You are also owed interest on the loan. Is that visible?

[missinggreenfields]

I'm confused.

You loaned the company money by not receiving the cash. So why do you now owe the company money?

[thomasjoyce]

A couple of years ago a company I was a director of(4 directors in total) was liquidated. A couple of weeks ago I got a letter from a chartered accountancy firm asking me to repay £3800. When I questioned why, they explained to me that my directors loan account had reduced from 12000 to 8200 in the last 6 months of trading before liquidation. (We had to go through involuntary liquidation- HMRC) I never actually loaned the company any money to build up this 12k, what was actually happening was along with about 10 other staff I was getting paid to run the company.( I was not a majority shareholder, and was running the company, the other directors were just shareholders and didn't get salaries or anything, just turned up for board meetings and helped steer the direction) But since the company didn't always have the money in the bank to pay my wage, I would get it late, sometimes months later.

So the way I see it is these are not directors loans but actually unpaid/late wages. The way that the CA has worked this out is that our company accountant supplied him draft accounts for our last 6 month period, and she took it upon herself to declare these unpaid wages as directors loans. I have not agreed to this in writing or signed off these drafts, in fact I was surprised she even supplied them to the liquidators.

My options as I see them are:
1. Pay the money. (I am able) But I feel as if this is letting the other directors off scot free, even though I was the one missing out on a wage. My company helped theirs in a lot of non monetary ways.
2. Tell the CA that I dont think I should pay because I see this as unpaid wages that were simply paid as and when the company had money. (Am I risking getting disqualified as a director? or them coming after me personally anyway)
3. I speak to the other directors and say we should all be splitting this liability, since I don't feel that I created it personally, and if you don't help then all 5 of us risk getting struck off. (Not the nicest path!) I actually moved out of the UK and started a company in the Middle East, I don't see myself starting another company in the UK anytime soon, as the Middle East operation is doing swimmingly, they on the other hand are all running companies in the UK, and so being struck off would be very detrimental.

On another note regardless of whether I pay back or not, does this sound like grounds to be disqualified from future directorships? I feel like I have done nothing wrong at all, in fact the company still owes me 8000 on paper, not that in reality I ever even thought it did till this letter came through the door.