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Directors Loan question

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Snorvey
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Directors Loan question

#270424

Postby Snorvey » December 10th, 2019, 3:37 pm

Husband and wife, joint shareholders of a small limited company.

Husband is sole director.

Husband has a directors loan account (i.e. money he has lent the company)

Husband dies.

What happens to the outstanding director's loan?

PinkDalek
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Re: Directors Loan question

#270452

Postby PinkDalek » December 10th, 2019, 4:38 pm

Snorvey wrote:What happens to the outstanding director's loan?


What are the precise terms of the loan (if any)?

In any event, in normal circumstances the loan would be repayable from the assets of the Estate, once the Executors/Administrators have received Grant of Probate /Letter of Administration.

Is there more you are not telling us and is there any reason you didn't ask at Legal Issues? If, for example, the husband is unwell, now might be the time for an additional director or two to be appointed.

uspaul666
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Re: Directors Loan question

#270481

Postby uspaul666 » December 11th, 2019, 5:14 pm

I think PD may have this the wrong way round. Any money the company owes the husband, but has not yet been actually paid, forms the directors loan account (DLA). This might been paye, expenses, dividends or money the director has specifically lent the company (perhaps to help it through a lean patch). I can’t see any reason why the DLA would be cancelled upon the death of the husband unless specifically written in to the terms of a loan he made. The amount in the DLA is surely due to the estate of the husband and should be paid in due course, preferably as soon as possible to settle the account and to enable the estate to be wound up and settled.

PinkDalek
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Re: Directors Loan question

#270498

Postby PinkDalek » December 12th, 2019, 6:58 am

uspaul666 wrote:I think PD may have this the wrong way round.


Yes, thanks, I realised my error and couldn't get back to rectify whilst this site was down, so I emailed Snorvey to point out my foolishness.

It would be down to the Executors/Administrators to attempt collection of the debt and would presumably depend on what assets are in the company, if any, and whether or not there are any Secured, Preferential or Crown Creditors to be settled in advance of the Estate being repaid.

If the company continues to trade and, say, the wife is the main or only beneficiary, it may be possible for the loan to be assigned to her or something along those lines, such that the company can continue as before, if there's anyone able and willing to continue operations.

Dod101
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Re: Directors Loan question

#270554

Postby Dod101 » December 12th, 2019, 11:08 am

Clearly, the loan is an asset in the deceased husband's estate and his executors would, depending on whether there is any saying otherwise in the loan agreement, be entitled to call it in. Of course if the surviving wife is the main or the only beneficiary of the husband's estate she may decide to leave it in place. She is a 50% owner of the business after all so has an interest in ensuring continuity.

Dod

Snorvey
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Re: Directors Loan question

#278079

Postby Snorvey » January 17th, 2020, 11:54 am

Directors Loan #2

if a dividend is declared but instead of being paid out it is kept in the company as a directors loan, is it still subject to the same rules as a dividend that is phisically paid out (dividend allowances etc)?

Ta.

PinkDalek
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Re: Directors Loan question

#278086

Postby PinkDalek » January 17th, 2020, 12:19 pm

Snorvey wrote:Directors Loan #2

if a dividend is declared but instead of being paid out it is kept in the company as a directors loan, is it still subject to the same rules as a dividend that is phisically paid out (dividend allowances etc)?


It depends to a certain extent on what paperwork exists, such as do you bother preparing Resolution of Directors for Interim Dividends (Finals require AGM approval), including wording along the following lines (from my template which is 100% amateur and I may not have the current Companies Act):

Snorvey Limited
(Company registration number 123456)

Resolution of Directors dated 14 February 2020, in lieu of Board Meeting, pursuant to the provisions of the Companies Act 2006, and as adopted by the company's own Articles of Association.

IT WAS RESOLVED that an interim dividend for the year ended 30 September 2020, at the rate of £100.00 per ordinary share, be paid on 1 April 2020 to the members registered on 14 February 2020.
and then signed by the named directors.

Broadly that should make the funds available to the shareholder despite not being drawn, on Lemon Fools' Day, and taxable as at that date such as described in these randomly found discussions which I haven't studied:

https://www.accountingweb.co.uk/any-answers/when-is-a-dividend-deemed-taxable-for-personal-tax-purposes
https://www.accountingweb.co.uk/any-answers/when-is-dividend-taxable-on-individual


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