LTD creditors voluntary liquidation - Directors loan repayment questions

[lookingforinfo]

Hello everyone,

I've had a good look through but I can't seem to find previous posts that answer the below, so any input would be appreciated

• I'm entering a creditors voluntary liquidation
• the ltd company only owes HMRC VAT/corp tax
• I've paid back 50% Of the initial amount via a HMRC payment plan
• As I've liquidated There is 50k remaining owed to HMRC
• The company wasn't profitable towards the end
• The directors loan account is about 50k Overdrawn
• Obviously this asset of overdrawn DLA will need repayment
• I do not have any other assets or monies
• The only asset I have is a house with around 100k equity
• At the moment any income I have is only enough to cover my basic living costs and covering any HMRC payments
  

My main questions are the following:

I've read online previous example cases where DLA Repayments were agreed at a extremely reduced percentage EG the two cases of people owing 400k & 1 million, Both had the DLA amount reduced to only 5 to 10 percent of that original figure they owed

I know these are just two cases and this probably isn't the common theme but what I've read seems to suggest you can always reduce the amount you pay back.

1. I fully understand that it will rely upon a lot of personal circumstances, But is this typical that you can come to an agreement of a much lower percentage of what you owe to pay back?
   
   
2. If it isn't is there any kind of benchmark percentage figure that it can be typically reduced to
   
   
3. And do they at any point during this process look at my only asset such as my house equity? And if so des This typically prevent reducing the amount that can be paid back?
   
   
4. Or is that only looked at when you're refusing to pay money back or fail to pay a payment plan and then goes to the next stage of securing a charge?
   
   
5. I obviously want to agree a payment plan but is there a type of minimum amount and monthly period They will accept?
   
   
6. Would they accept a monthly repayment of £500? If not is there a benchmark for the type of lowest amount they would accept?
   
   
7. And what's the longest period you can Expect a payment plan to go on for?
   
   
8. Any other advice on handling this?

 

[Andrew Bailey]

Good morning

Seeking repayment of an overdrawn director's loan account is a common scenario for IPs to deal with as part of a liquidation.

A typical approach would be to carry out a "means test" so the IP will consider your income and expenditure and asset/liability statement in order to assess your ability to repay the loan. Ultimately the IP is acting on behalf of the creditors and needs to be able to transparently explain to creditors why (if) they decide to accept a reduced offer in settlement of the loan.

It is not uncommon for a lower amount to be repaid compared to what is due. However, if the loan can be repaid in full then the IP will pursue this.

However any reduced settlement needs to be based upon this means test. There is no benchmark percentage figure to reduce the figure to because it is a case by case basis.

The IP will consider your equity when looking at how much you can afford to repay overall. I don't believe there would be standard period to repay or monthly payment level that would be expected. For example, one option could be that you agree a payment plan initially to start repayments but with a view to reviewing these after 6 months or perhaps look at raising a lump sum payment in due course. There is flexibility in how it can be repaid.

One point to be aware of is that if an element of the loan account is written off then this is reported to HMRC and they will tax you personally on the income received. This is often overlooked.

Kind regards

Andrew

 

[lookingforinfo]

Great reply thanks it answered everything!

 

[Lisa Thomas]

I'm a little concerned here, as it sounds like you've already instructed an IP firm but have not agreed the way forward as regards the DLA...

I'm about to go into a meeting but will reply to your queries later.

 

[Lisa Thomas]

Is the £100k equity in the property all yours, or split between about party/joint owner etc?

 

[Lisa Thomas]

1. I fully understand that it will rely upon a lot of personal circumstances, But is this typical that you can come to an agreement of a much lower percentage of what you owe to pay back?

It's based on what you can afford. If you're sat on equity of £100k and owe £50k, offering £10k in full an final settlement (for example) isn't going to wash with a liquidator.

1. 
   
   
2. If it isn't is there any kind of benchmark percentage figure that it can be typically reduced to

No, because it's based on affordability and what is being offered. I.e. a quick lump sum cash settlement is likely to be looked up more favourably than payment in instalments over several years.

1. 
   
   
2. And do they at any point during this process look at my only asset such as my house equity? And if so des This typically prevent reducing the amount that can be paid back?

They will possibly compare outcomes with bankruptcy and how much dividend the company might recover on a worst case basis.

1. 
   
   
2. Or is that only looked at when you're refusing to pay money back or fail to pay a payment plan and then goes to the next stage of securing a charge?

Depe3nds on what you agree with the liquidator. This should be discussed before you liquidate so you know where you stand.

1. 
   
   
2. I obviously want to agree a payment plan but is there a type of minimum amount and monthly period They will accept?

See above.

1. Would they accept a monthly repayment of £500? If not is there a benchmark for the type of lowest amount they would accept?

That would take you over 8 years to repay when they might potentially get it within say 2 years of making you bankrupt.

1. 
   
   
2. And what's the longest period you can Expect a payment plan to go on for?

That's up to the liquidator and your circumstances. They have to be able to justify their decision to the creditors, their auditors and licensing body etc.

1. Any other advice on handling this?

Discuss it (and ideally get an agreement in writing) with the liquidator before they are instructed. There is always a risk another liquidator will be appointed instead of your choice, in which case the deal will go out of the window.

 

[lookingforinfo]

Thanks for your detailed reply, very appreciated

 

[Lisa Thomas]

You're welcome.