What if I have a personal guarantee or an overdrawn Directors loan account?
First things first; do you know if you have given a personal guarantee or if your director’s loan account is overdrawn?
Great if you do know; if you don’t then we can help you both understand fully what they are and whether you might be at risk from either of them.
A personal guarantee is an assurance to a company creditor that if the company is unable to pay the liability then the guarantor(s) will pay the amount which the company cannot.
A personal guarantee is most likely to be given to a Bank or factoring company and sometimes to a trade creditor or a leasing company.
There is often an asset which exists to protect the guarantor; book debts or the financed assets for example. Only if they are worth less than the value owing to the creditor will the guarantee be called upon.
In the case of bank borrowing the bank should hold a debenture over the company’s assets to protect the guarantor.
Any shortfall to a guaranteed creditor will need to be negotiated to arrange repayment terms should you be unable to settle the amount in full immediately.
Overdrawn Director’s Loan Account
The swing from salary to dividends for directors can have its downsides in the situation where the company faces insolvency.
If your accountant has prepared accounts which show that you have an overdrawn loan account, the liquidator will identify this and will require repayment of this to the company. It is most likely that if evidence is provided that you can negotiate a sensible repayment plan for this sum.
Prior to negotiating a settlement, you should contact your accountant to request a breakdown as the accounts which the liquidator has may be out of date and therefore some transactions may not have been accounted for. This up to date account will also be requested by the liquidator in any event.
It is quite normal for a director’s drawing from a company to be put a Director’s loan account during a year with the expectation that the when the accounts for the year end are drawn up then the loan account would be cleared from profits. Where there are no such profits then the loan account will need further investigation.
We’re keen to discuss loan account issues are early as possible so that up to date figures can be prepared as soon as possible to understand that extent of any problems.
Feel free to contact us for a confidential chat if you are worried by any of these issues.