Hi there. I’m new here so please be gentle. Just a quick question first
I have received details from a liquidator I sort and appointed to deal with my limited company’s liquidation as to how much is owing to a creditor, I’ve been advised by an accountant ( not mine ) that I should request a bank summary. Am I within my rights to do so as I’d like to see how the amount owed to the creditor is made up and or calculated. Also although there is only one creditor ( HMRC ) there are muttering that a member of my family is also considering making a claim on my business, thus being a second creditor. I have asked the liquidator for details of what they are possibly going to be claiming for but he has said he is unable to comment which is a great worry at this time. He has also said that he has not adjudicated on this this far. I’m sure I’ve forgotten other things I’d like some help and advice on but hopefully I can at least get the ball rolling.
Many thanks all.
My assumptions here are as follows:
1. Assets: there is an overdrawn director's loan account ("ODLA") in a Creditors Voluntary Liquidation.
2. Liabilities: there is an HMRC debt and the prospect of a family member debt to add to the creditor level.
3. The liabilities are affecting the level of the ODLA that the liquidator might seek to collect.
Based on those assumptions I answer my *own* question on what is going on in effect and the consequences:
1. The starting point is the ODLA is an asset of the company. It is a cardinal duty of any liquidator to realise the company's assets in whatever form they take. An ODLA is a company asset just like any other. The amount of the ODLA to be repaid is not in principle affected by the debt levels as one thing is unaffected by the other in general terms. However, to prevent circularity in the event that to have to repay the whole ODLA would mean money going back to the director/shareholder, it is more common for the collection of an ODLA to be confined to the level of the debts, interest and the costs of liquidation. As ever there is always an exception ie. if the liquidator were to assign the ODLA, in which case then it has recently been held following a couple of Manolete court cases, that the full amount would usually have to be repaid and the level of debts is in effect then irrelevant.
2. The potential new entry creditor claim may increase the amount of the ODLA that the liquidator asks to be repaid because it increases the overall level of creditors in the case. That will depend on the liquidator's adjudication of the claim of the family member.
3. It is open to a director affected by the level of creditors through an ODLA to challenge the claim of any creditor. Challenging HMRC claims can be tricky as ultimately a dispute is a Tax Tribunal matter.
4. A liquidator seeking to collect in an ODLA might find it difficult to do so if they did not provide details of the claims of creditors and the rationale for the amounts owed because ordinarily, the director might not pay if they were concerned. The liquidator would be left having to bring legal proceedings to collect in the ODLA and required to adhere to the Civil Procedure Rules on continuing obligations of relevant disclosure.
5. Even if there is an element of the ODLA that it is agreed with a liquidator not to repay, that is not the end of the story because the released amount is then subject to a Section 415 income tax charge and should be disclosed on the director's personal tax return in the period in which the release arises.
Hope this helps.
Need further help by all means get in touch on the discrete facts of your case.
Disclaimer
This is not legal advice and is not to be relied upon as such. This is provided for information purposes only. You should take independent advice on the facts of your case. No liability is accepted for any reliance upon this post.
