Interesting Article re attempt to reclassify dividends as remuneration

[Lisa Thomas]

Thought I would share this article as it is a regular subject. I wish I could conduct all my meetings at The Ivy...!

Overdrawn director’s loan account cannot be reclassified

In the case of Bass & Ors v Buchanan [2021] EWHC 2740 (Ch) sole director Bronia Buchanan was ordered to repay her director’s loan account balance of £286,421.45

www.ashfords.co.uk

 

[ChrisCallaghan]

Very much worth sharing. It's not uncommon for directors to ask me about this exact subject.

 

[The Byre]

Two things spring to mind here -

1. I just cannot imagine any responsible accountancy practice recommending such a maneuver! If they did, they would firstly lose any credibility with HMRC who then would be tempted to take a closer look at all their clients - something every accountant tries to avoid - and secondly, run the risk of being held to account by their governing professional association.

2. Trying to get clever with HMRC is never a good idea. They don't have to be clever. They just have to decide otherwise and that is then an end to the matter!

 

[ChrisCallaghan]

A client of an accountancy practice I used to work for once tried to retrospectively have their overdrawn directors loan account declared as PAYE prior to instructing a liquidator. They were advised by both the accountant and the IP that it was a bad idea. If memory serves, HMRC simply overturned the transaction, and I suspect the director may have been handed a director's ban.

 

[Gavin Bates]

Many thanks for sharing. We are seeing a number of cases with similar issues including overdrawn Directors Loan Accounts, illegal dividends, and drawings.

 

[WaveJumper]

Interesting link thank you also on a completely different note an interesting article on the Rent Recovery Arbitration Scheme (CRAR) an the effect this may have on those commercial rent arrears

​

 

[ChrisCallaghan]

Speaking of interesting reads....

Maximum 15-year ban for fake insolvency practitioner

Judge orders Director of Public Prosecutions to consider criminal prosecution, while accomplice receives separate 11-year ban.

www.gov.uk

 

[japancool]

I'm completely off these "business turnaround services" companies now, after my experience with one.

I mean, isn't it the IP's role to ensure the best outcome for creditors, rather than the insolvent company? That would seem to be a conflict of interest.

 

[ChrisCallaghan]

I'm completely off these "business turnaround services" companies now, after my experience with one.

I mean, isn't it the IP's role to ensure the best outcome for creditors, rather than the insolvent company? That would seem to be a conflict of interest.

You're not wrong, it's a difficult line to tread. A director approaches an IP for advice, and then when appointed the IP's duty is largely to the creditors.

For myself, I always aim to give as much practical and honest pre-appointment advice for the director as I'm able, without hiding what the IP's role will be once appointed. The last 18 months in particular have been the most interesting due to BBL misuse. It has been quite common for me to advise a director to reconsider liquidation and explore other options.... often being remortgage & pay back the BBL you've misspent!

These days the only disgruntled directors I have post appointment are one's who either lied or withheld information at the pre-appointment advice stage.

 

[UKSBD]

You're not wrong, it's a difficult line to tread. A director approaches an IP for advice, and then when appointed the IP's duty is largely to the creditors.

It amazes me that some people think IP's are knights in shining armour and are being very helpful when they post here, no disrespect to those that do, and a lot of time they are providing great information.

Do people not realise though that if they post here that they have a £50k outstanding DL, have probably taken illegal dividends and they don't want to re-mortgage their property, that they are effectively painting a target on their own backs.

I doubt there are many IP's who have to actually look for work at the moment, but if times were different, forums like this must be great for them.

 

[ChrisCallaghan]

I doubt there are many IP's who have to actually look for work at the moment, but if times were different, forums like this must be great for them.

I find this forum is great for preparing company directors for the realities. An IP or an advisor from an IP firm like myself cannot undo what the director has already done before seeking advice. But we can honestly advise of them of what to expect. For many that can often be reassurance that they have nothing to fear. For others that can preparing them for what lies ahead should they instruct an IP or wait for a compulsory liquidation.

For me, if a company director contacts me having read threads here at UKBF, they are usually very well informed about their options and the implications before they've even picked up the phone.

 

[Lisa Thomas]

Do people not realise though that if they post here that they have a £50k outstanding DL, have probably taken illegal dividends and they don't want to re-mortgage their property, that they are effectively painting a target on their own backs.

Any IP appointed will find that out.

 

[Lisa Thomas]

I find this forum is great for preparing company directors for the realities. An IP or an advisor from an IP firm like myself cannot undo what the director has already done before seeking advice. But we can honestly advise of them of what to expect. For many that can often be reassurance that they have nothing to fear. For others that can preparing them for what lies ahead should they instruct an IP or wait for a compulsory liquidation.

For me, if a company director contacts me having read threads here at UKBF, they are usually very well informed about their options and the implications before they've even picked up the phone.

They still don't like the advice though, Chris, do they!

 

[Lisa Thomas]

You're not wrong, it's a difficult line to tread. A director approaches an IP for advice, and then when appointed the IP's duty is largely to the creditors.

For myself, I always aim to give as much practical and honest pre-appointment advice for the director as I'm able, without hiding what the IP's role will be once appointed. The last 18 months in particular have been the most interesting due to BBL misuse. It has been quite common for me to advise a director to reconsider liquidation and explore other options.... often being remortgage & pay back the BBL you've misspent!

These days the only disgruntled directors I have post appointment are one's who either lied or withheld information at the pre-appointment advice stage.

Well put.

 

[ChrisCallaghan]

They still don't like the advice though, Chris, do they!

Quite often not! Many a case of shoot the messenger!

 

[Mr D]

Quite often not! Many a case of shoot the messenger!

Seen that many times over the years.
People want unicorns and rainbows, to be patted on the back and told they did the right thing, to be told they are a success.
They don't want the truth. Even going so far as to reject anyone telling them the unsweetened truth. Instead choosing to follow the advice of those willing to feed their ego.

And then they hit reality. Hard.