Bankruptcy · Insolvency & Dispute Resolution
Has a liquidator or their solicitor written to you claiming that you owe money to your former company? We act for directors defending claims for alleged overdrawn director loan accounts, unauthorised withdrawals, personal expenditure, unlawful dividends and misapplication of company funds.
A typical claim starts with a letter from the liquidator or their solicitors. The letter may say that the company's books show an overdrawn director's loan account.
It may attach a spreadsheet or bank analysis identifying dozens — sometimes hundreds — of individual transactions which the liquidator alleges were payments to the director or expenditure which was not for the company's business.
The fact that the liquidator has produced a schedule of transactions does not necessarily mean that the amount claimed is correct.
Send us the liquidator's letter, transaction schedule or bank analysis, relevant company accounts, director's loan account or ledger (if available), and supporting documents.
Call West London Law on 0207 889 0100 for urgent advice.
A substantive response should be prepared carefully and should not make unnecessary admissions.
Potentially, yes. An overdrawn director's loan account can represent a debt due from the director to the company. When the company enters liquidation, the liquidator will investigate assets which may be recoverable for creditors.
But the first question is: Is the amount the liquidator says is owed actually correct?
Not every payment to a director, or every transaction appearing in the company's bank statements, is necessarily a loan to the director. The accounting treatment and underlying reality of each transaction may need to be examined.
There is no single defence which applies to every case. The defence will depend upon the accounts, bank records, agreements, payroll records, dividend documentation and the actual purpose of the transactions.
Individual transactions may have been incorrectly categorised. A payment appearing in a bank statement does not by itself establish that the director personally borrowed the money. It may have been legitimate company expenditure, payment of a company liability, reimbursement of expenses, repayment of money previously advanced by the director, salary or remuneration, a dividend or distribution, expenditure incurred on the company's behalf, or a transaction involving another individual or entity.
A transaction-by-transaction analysis is of limited value if the starting balance itself is incorrect. The alleged loan account should be reconciled against previous accounts and underlying records.
A payment to a director is not automatically a loan. The director may have been entitled to salary, remuneration, commission, expenses or other sums from the company. Payroll records, employment arrangements, board decisions, accounts, PAYE records and historic payment practices may therefore be important.
Some payments identified as drawings or loans may have been intended and treated as dividends. Whether a dividend was lawfully available and properly declared requires examination of the company's financial position and accounting records at the relevant time, including available distributable reserves and dividend documentation.
Directors frequently fund their companies personally. You may have transferred personal funds into the company, paid suppliers or employees personally, paid rent or other company liabilities, used a personal credit card for company expenditure, lent money to the company, or left salary or other amounts owing to you unpaid.
Those credits must be considered when establishing the true financial position between the company and the director.
Where the company owes money to the director and the director also owes money to the company, insolvency set-off may become relevant, depending upon the legal character of the respective liabilities and the requirements for mutuality. Different considerations can arise where the claim is framed as misfeasance or breach of duty rather than simply recovery of a debt.
A liquidator's bank analysis may classify transactions as personal because their business purpose is not immediately apparent. There may be invoices, receipts, emails, contracts or other evidence demonstrating that the expenditure was incurred for the company.
The calculation should be checked for payments back into the company and other credits. A claim may be overstated if it concentrates upon money leaving the company without properly accounting for money or value subsequently returned.
The liquidator should establish who received the money and the basis upon which the director is said to be personally liable. Payments to third parties should not automatically be attributed to a director merely because the director authorised them.
Where allegations extend to breach of duty or misfeasance, it is necessary to examine what the payment was for, whether it was authorised, the company's financial circumstances, the benefit received by the company and the precise legal basis upon which personal liability is alleged.
The appropriate response may require each transaction to be categorised as:
This can transform the analysis by breaking down the headline claim and requiring the liquidator to establish the basis for the sums actually in dispute.
A response should be prepared carefully and should not make unnecessary admissions. Depending upon the case, the liquidator may be asked to identify the legal basis of the claim, provide a complete calculation and underlying documents, give transaction-by-transaction particulars, and account for all credits and countervailing transactions.
A demand for £50,000, £100,000, £250,000 or more can understandably cause considerable concern. The first task is to reconstruct the true account.
The precise legal treatment will depend upon the facts and the nature of the claim.
Claims can sometimes be resolved commercially. Once the merits and value have been analysed, consideration can be given to negotiation and settlement.
The strength of the claim, available defences, documentary evidence, litigation risk, costs and the director's financial circumstances may all be relevant.
West London Law focuses on insolvency defence and disputes. We advise directors facing overdrawn director loan account claims, liquidator claims, misfeasance claims, unlawful dividend claims, unauthorised withdrawal allegations, preference claims, transactions at undervalue, wrongful trading allegations, director disqualification, bankruptcy and insolvency proceedings.
Analyse the transactions. Challenge the figures. Identify the defences. Establish the true financial position. Then determine the appropriate response or settlement strategy.
If a liquidator or their solicitor has written to you demanding repayment of an alleged director's loan account, obtain advice before making admissions or agreeing the amount claimed. Send us the letter and transaction schedule for review.
Instructions are taken from clients nationally although located in London.
Gurvir Birang is an insolvency and litigation solicitor and entrepreneur with substantial experience in insolvency disputes, bankruptcy matters and commercial litigation.
He has been recognised as a leading individual for restructuring and insolvency by Chambers and Partners.
Having founded West London Law and other technology-focused businesses, Gurvir understands the practical and commercial pressures which financial disputes and insolvency proceedings can create.
A liquidator may seek recovery where the director is indebted to the company, but the amount and legal basis of the claim should be checked carefully.
Potential issues include inaccurate categorisation, legitimate business expenses, salary or remuneration, lawful dividends, repayments, money introduced personally into the company, incorrect opening balances, attribution of payments and, where applicable, set-off.
The transactions can be reviewed individually against the underlying accounting records and evidence, and disputed items can be challenged in the response.
Potentially. Personal advances, payments of company liabilities and other sums due to the director should be identified and their proper legal and accounting treatment considered.
Care should be taken before making admissions. Where a substantial claim is made, obtaining advice on the figures, evidence and legal basis before sending a substantive response can be important.
Where a liquidator alleges that a director owes money to a former company, the figures, underlying transactions, accounting treatment and legal basis of the claim should be examined carefully.
West London Law is a trading style of West London Law Limited and is not a firm of solicitors. Legal services referred to on this page are provided by Gurvir Birang practising through Spencer West LLP.
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West London Law Limited does not provide reserved services to the public.
Gurvir Birang is a practising solicitor, founder, litigator and bankruptcy expert, authorised and regulated by the SRA. Gurvir Birang practices from Spencer West LLP. Spencer West LLP is authorised and regulated by the SRA.
West London Law is a trading name of West London Law Limited, registered in England and Wales (company number 06776937).
West London Law was set up in 2003 and became non-regulated in 2020 and is no longer a firm of solicitors. This website is for marketing purposes only.
Disclaimer. Information on this website does not constitute legal advice and should not be relied upon as it does not provide a complete statement of the law. Specific legal advice should be sought and tailored to your particular circumstances.