The answer to the question Can I Close My Company With An Overdrawn Director’s Loan Account? is yes you can.
There is no difference in the position of an Overdrawn Director’s Loan Account when a company is solvent or insolvent; it is an asset of the Company that a Director is liable to repay.
When a company is closed down its assets will be realised to satisfy any expenses of winding up and liabilities to creditors. Any residual sum left over that is available is then to be paid to the Shareholders. However, a company that is struck off and dissolved with an Overdrawn Director’s Loan Account that is not repaid will be bona vacantia, or without an owner.
A company that is trading and continuing normally may carry its assets for a longer period than one that is closing down and going into Liquidation.
A key difference when a company is closed down is that the Overdrawn Director’s Loan Account might not need to be actually repaid by the Director to the Company if it is solvent but will have to be if it is insolvent. However, in either instance, the liability of the Director to the Company remains with respect of the overdrawn balance.
An Overdrawn Director’s Loan Account is a debt owed by a Director to a Limited liability company.
It arises because when a Director is running a company, he or she may choose to assist the Company when it needs funds by lending it money or incurring expenses on its behalf by paying for them. Conversely, a company may under the actions of its Director(s) choose to lend money to a Director similarly.
Separate from monies going either to or from the Director to or from the company, a Director may also be entitled to monies from the company by way of Dividends or salary that has not been paid over.
However, at any point in time, the combined effect of such transactions between a Director and a company will give rise to a net balance, either a sum due from the Company to the Director or vice versa as considered here further, then the Director owes the Company money. That latter is the Overdrawn Director’s Loan Account position.
When an insolvent company is being closed down either via a Creditors Voluntary Liquidation or Compulsory Liquidation it is the duty of the Liquidator to realise the assets of the Company.
The process of Liquidation is one that enables the Company to be wound up in an orderly fashion. All the assets must be realised as part of the procedures set out in Part IV of the Insolvency Act 1986.
As an Overdrawn Director’s Loan Account is simply another asset of the Company it too has to be realised but its existence does not fetter the closure of the Company. However, the way that it is realised or disposed of by the Liquidator may vary such as being written off or if a Director cannot repay all of it reduced or released by negotiation.
In the case of a solvent company with an Overdrawn Director’s Loan Account then it can be closed down in one two ways. It can go into Liquidation via the process known as Members Voluntary Liquidation or it can be struck off from Companies House (where it is registered) by being Dissolved.
When an owner managed company (the Directors and Shareholders are the same people) goes into Members Voluntary Liquidation with the Statement of Affairs showing it to have an Overdrawn Director’s Loan Account, to avoid the Director having to repay the loan for money then to go around in a circle back to them, the Liquidator may do what is known as a distribution in specie.
As with an insolvent company the closure is unaffected by the Overdrawn loan account.
When a company is solvent and trading normally the Director is liable to repay the Overdrawn Director’s Loan Account but may not do so.
If a Director does not repay the loan account within 9 months and one day of the Company’s year end then the Company is liable to pay corporation tax under Section 455 of the Corporation Tax Act 2010. If any of the Director’s overdrawn Loan account is subsequently repaid then the relevant proportion of the Section 455 tax can be reclaimed for return to the company under Section 458 of the Corporation Tax Act 2010.
This applies to the liquidation of a company with an overdrawn director’s loan account*
*Terms and conditions of engagement as well as VAT apply.
For a free no obligation chat about any of the matters detailed above, please do get in touch for help. An expert will call you back or if you prefer exchange emails.
We can explore your situation and consider the best way to help you and your business needs. You can call us 020 3925 3613 or fill in the form below and will get back to you quickly. We Know Insolvency Inside Out.
If you have any questions in relation to Can I Close My Company With An Overdrawn Director’s Loan Account? then contact us as soon as possible for advice. Oliver Elliot offers a fresh approach to insolvency and the liquidation of a company by offering specialist advice and services across a wide range of insolvency procedures.
This page is not legal advice and is not to be relied upon as such. This article Can I Close My Company With An Overdrawn Director’s Loan Account? is provided for information purposes only. You should take independent advice on the facts of your case. No liability is accepted for reliance upon this post.
Oliver Elliot is a specialist firm set up by Elliot Green, who is a Licensed Insolvency Practitioner and Chartered Accountant. We know insolvency inside out. We offer a vast variety of services and can accommodate you no matter what industry you are in and what insolvency services you require. Where there’s Oliver Elliot there’s a way.
© 2026 Oliver Elliot. All Rights Reserved. Registered in England and Wales. Company Number: 11746967
