The answer to the question Can I Deal With My Overdrawn Director’s Loan Account Before Liquidation? is no you cannot. It is a complete non-starter to arrange an agreement with the liquidator on what happens to an overdrawn director’s loan account before a liquidator has been appointed.
The question posed in the article is arguably ambiguous in that a director can deal with their overdrawn director’s loan account themselves before liquidation but not with the proposed liquidator. However, if that were the case there would be no need to infect the question with reference to liquidation. Liquidation implies the appointment of a liquidator, adroit to address the overdrawn director’s loan account and any other assets.
Only An Appointed Liquidator Can Deal With An Overdrawn Director’s Loan Account
You cannot have a liquidation without a liquidator. Perhaps just as you cannot have a company without a director.
Whilst theoretically possible as a consequence of odd events, in practice it is a rare event that does not warrant expanding our craniums in this article. Those who wish to descend into the dubiously delightful discourse of rudderless companies in or out of liquidation with officers (director or liquidator) that might have suffered defenestration, might be in for a long wait for such an article to sprout on this site.
Perhaps the obvious answer when peering into the horizons of why it cannot be done when a director is attempting to sort out an overdrawn director’s loan account is that until the company has dipped not only its toes but gone fully torso to top hat into liquidation, there is no liquidator in office with whom to determine the matter.
What Is Wrong With Dealing With An Overdrawn Director’s Loan Account Pre Liquidation?
Few questions may feverishly occupy the minds of a director going into liquidation than the matter of “What happens to my overdrawn director’s loan account?”.
Whilst the proposed liquidator can loquaciously expand on the likely process surrounding such testing matters with the director, that is as far as they can really go. It is axiomatic he or she cannot deal with the overdrawn director’s loan account until they are the liquidator.
The liquidation barricades are firmly erected until the liquidator is installed. Only then can the liquidator embark upon the fest of asset realisation. An overdrawn director’s loan account is just another company asset for the liquidator voted in to realise and address as part of their quest for asset discovery.
A proposed liquidator of an insolvent liquidation will no doubt be mindful that immersion into such a lobster pot (ethical considerations which are considerable aside) does not enable even protagonists professing to harbour clairvoyant attributes, to know if a majority creditor (such as HMRC for example only) will parachute in its liquidator of choice, who could tear to further shreds the confetti of any prior consensual draft disposal of an overdrawn director’s loan account.
The proposed liquidator might therefore never be the liquidator, so they are fettered from dealing with the overdrawn director’s loan account before they have assumed office. Suspicion about the likely identity of the appointment of a liquidator does not enable the future to be fleshed out as fact before its time has turned up to be counted.
Ethical Barriers To Resolving Director’s Loan Account In Advance Of Formal Liquidation
However, there are even more fundamental reasons a director cannot deal with their overdrawn director’s loan account just before liquidation with the liquidator.
The notion of formally finalising an overdrawn director’s loan account’s disposal pre-liquidation would be drenched by the waves of such seemingly unhygienic conduct. The insolvency ethics would perhaps more than frown upon an insolvency practitioner if the outcome was predetermined by them before any actual appointment. It might enable a director to canvass professionals until they find one willing to determine the position at the level the director desires. However, a liquidator’s duties do not permit such premature arrangements or indeed to act in the interests of the director, a fortiori when they conflict with the company.
A liquidator has an absolute duty to maximise asset realisations, not minimise a director’s discomfort at the expense of creditors.
And not only that but such a proposition would place the proposed liquidator in a position of acute conflict that could not be managed regardless of mental dexterity. A proposed liquidator could not enter into such arrangements before they are appointed. They simply do not have the authority to do so. They must not do so until or unless they can hitch a ride on the coattails of bona fide conduct consistent with the integrity that the appointment itself affords.
A liquidator must be vigorous, efficient and unbiased.
