Q&As

What is the limitation period for bringing a claim in a liquidation to recover an overdrawn director’s loan account where there are a series of payments made to the director, together with a misfeasance claim under section 212 of the Insolvency Act 1986?

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Published on LexisPSL on 31/01/2018

The following Restructuring & Insolvency Q&A provides comprehensive and up to date legal information covering:

  • What is the limitation period for bringing a claim in a liquidation to recover an overdrawn director’s loan account where there are a series of payments made to the director, together with a misfeasance claim under section 212 of the Insolvency Act 1986?
  • Overdrawn directors’ loan accounts
  • Misfeasance claims against directors under IA 1986, s 212
  • Limitation period for misfeasance claims
  • Defences and limitation of liabilities

What is the limitation period for bringing a claim in a liquidation to recover an overdrawn director’s loan account where there are a series of payments made to the director, together with a misfeasance claim under section 212 of the Insolvency Act 1986?

Overdrawn directors’ loan accounts

It is not uncommon in a company insolvency to find that there is an overdrawn directors’ loan account—ie that the company has paid sums to its director(s) which have been recorded in the company’s accounts as loans. Often this is done as a way to pay remuneration to the director(s) without having to pay income tax as the payments have created liabilities on the part of the director(s) to the company, though HMRC may treat it as an interest-free loan and seek to charge income tax accordingly. Sometimes, directors’ loan accounts are used in order to pay ‘interim’ dividends to directors who are also shareholders, with an accounting adjustment exercise undertaken at the end of the financial year when it is known whether or not the company is in a position to pay a dividend.

In an insolvency process, where the claim is to recover the balance of an overdrawn directors’ loan account, this can be pursued as a misfeasance claim under section 212 of the Insolvency Act 1986 (IA 1986) and/or potentially a transaction at an undervalue claim under

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