What happens to a director's loan account in liquidation?
A director's loan account records amounts introduced, withdrawn or paid on behalf of the director. If the final balance is overdrawn, it may be repayable to the company.
6 min read · Last reviewed August 2026Establish the correct balance
The ledger should be reconciled to bank transactions, expenses, remuneration, dividends and amounts introduced.
- Drawings and transfers
- Personal expenses
- Salary and bonuses
- Dividends and supporting paperwork
- Funds introduced
- Set-off and repayment claims
Liquidator's duties
An overdrawn balance is potentially an asset for creditors. The liquidator must consider recoverability, supporting explanations and any legal defences or set-off.
- Amount and transaction history
- Director's financial position
- Limitation and documentation
- Settlement and enforcement options
Take advice before insolvency
Attempts to reclassify or clear a balance without proper legal and accounting support may create further issues. Obtain advice before making entries or payments.
Common questions
Can dividends clear the account?
Only valid dividends supported by sufficient distributable reserves and proper corporate records should be credited.
Can the balance be negotiated?
A liquidator may consider settlement where appropriate, but must act in creditors' interests and assess the evidence and recoverability.
This guide is general information only and does not constitute insolvency, legal, tax or financial advice. The position should be reviewed using the company's current facts and documents.