What is a Director’s Loan Account (DLA)?
A Director’s Loan Account (DLA) is a record of transactions between you, the director and your company. A DLA tracks money taken from the company that isn’t salary, dividends, or expense reimbursements, or money that is lent by you to the company.
What is an overdrawn Director’s Loan Account?
An overdrawn DLA is where you, as a director, have taken money out of your company outside of dividends or salary, exceeding the funds you have put in. You would be deemed to be benefiting from a director’s loan; a loan from the company to yourself.
Until that loan is repaid, an overdrawn DLA is considered a company asset, and you should keep track of the outstanding and repaid amounts.
What are the tax implications of an overdrawn DLA?
Any money a director takes out of a company which is not classed as a dividend or salary and exceeds the value of the money you have put into the company is classed as a taxable benefit for the director.
If the unpaid amount surpasses £10,000, HMRC may view the loan as an untaxed source of income.
What happens to a Director’s Loan Account in an insolvency procedure?
During an insolvency procedure, a DLA will be reviewed and treated as an unsecured asset to the company.
This means if your account is overdrawn and you owe money back to the company, the loan will be treated as an unsecured company asset, for which you will be personally liable. If your DLA is in credit, you will become an unsecured creditor to your company.
What can happen to a DLA in insolvency
Can I be held personally liable for a Director’s Loan Account?
If you take out a DLA from your company and the account is overdrawn, you become personally liable for that loan, regardless of whether or not the company is insolvent. It is then your responsibility to repay the loan.
If your company becomes insolvent and there is an outstanding DLA, as a director, you will be personally liable for the outstanding amount.
Do I have to repay a Director’s Loan Account?
During liquidation, one of our licensed and regulated insolvency practitioners (IPs) will review any overdrawn DLA.
Under certain circumstances, the IP may consider accepting a reduced offer in repayment of the loan if you do not have the means to settle it in full. However, an overdrawn DLA is not usually written off as the outstanding balance is a company asset.
How our services can help you
If you have an overdrawn DLA or you’re worried that your company is in financial difficulty, we can offer free, confidential advice and discuss the solutions available. We can discuss the most appropriate procedures for your company and offer a no-obligation consultation.
- Repay your company debts in a payment plan via a Company Voluntary Arrangement (CVA)
A CVA is a payment plan between a company and its creditors that allows you to restructure your company’s unsecured debts, while continuing to trade, by making affordable monthly payments over a fixed period. We start by assessing your company’s financial position, determining a realistic repayment amount. These terms are then proposed to your creditors and if approved, your company enters the repayment plan. When in place, all interest and charges are dropped and creditors in the arrangement cannot take further legal action. The process lasts for up to 5 years and on successful completion, any remaining unsecured debt in the arrangement is written off.
- Restructure your company through administration
Administration is an insolvency procedure for companies. Entering the procedure, your company will be in a temporary state of protection by a moratorium that halts creditor action, including legal proceedings, giving your company the breathing space to continue trading. We will act as administrator and our primary purpose is to rescue your company as a going concern, attempting to restructure and turn it into a leaner, more profitable organisation. If rescuing the company isn’t a viable option we will also look at the most appropriate exit strategies from administration, whether that be a potential sale of the business, assets, the whole company, or transitioning to an alternative insolvency procedure.
- Close your company down via a Creditors Voluntary Liquidation (CVL)
A CVL is a liquidation procedure for companies that are insolvent. The process will formally close and liquidate your company, ceasing its trading operations, realising any assets, and removing the threat of creditor legal action. If your company has employees, they can claim for redundancy and other statutory entitlements through the government’s Redundancy Payment Service (RPS). The process is final and irreversible. Once completed, your company’s unsecured debt will be written off and the company is dissolved, allowing you, the director, to move on.
- Close your company down and start again via a pre-pack liquidation
A pre-pack liquidation is a type of CVL where the sale of your company’s assets is arranged before liquidation, allowing business operations to continue seamlessly under the purchasing company. The company name may be reused, and employees can transfer under TUPE. Contracts and essential agreements can also be included as part of a sale, ensuring minimal disruption to your business operations. This process eliminates the unsecured debts of your previous company, providing a fresh start free from previous unsecured liabilities.
How to get in touch: The next steps
- Speak with our initial advisers
Make contact with our team, via phone, filling in a form, or online chat. We will assess your circumstances and, if suitable, arrange a free consultation with a consultant to discuss your company’s situation. - Initial assessment
During the consultation, we will advise if an insolvency procedure is the most appropriate route forward or whether alternative solutions better suit your company’s problems. - Formally engage with Wilson Field
If there is an appropriate insolvency solution, we will confirm the necessary steps to start the procedure and will issue you with the relevant documentation for you to formally engage us.
In summary
A Director’s Loan Account allows you to borrow and lend money from and to your company. As director, you are personally liable for any DLA taken out of your company and it is always your responsibility to repay it. As such, taking a loan out of your company should be well-documented. An overdrawn DLA is considered a company asset, and if your company faces insolvency, you will be expected to repay it.
If you have an overdrawn DLA or you’re worried your company is in financial difficulty, we can advise you on the most appropriate options.
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