Over Drawn Directors Loan Account (ODLA)

Many directors that I visit are often unaware that they have an over drawn directors loan account (ODLA) or the implications of this when the company is in an insolvent position.

Many directors see the only way of dealing with the company's position and accrued creditor debts (most of which is usually to the HMRC) is to enter creditors voluntary liquidation (CVL) and unfortunately, this is often the advice they receive.

If a company enters CVL while the directors have outstanding ODLA's, this debt will need to be repaid to the company, allowing it to be distributed to the creditors as a dividend by the liquidator.

While unsecured company debts are written off in CVL, the ODLA is not. This money must be repaid as it is in breach of the Companies Act 2006. In many cases, it is the borrowing of such funds from the company that has contributed to it becoming insolvent.

If the insolvent company is viable and there are ODLA's outstanding, a company voluntary arrangement (CVA) would be the correct advice, as it will not only achieve a better result for the creditors (which is the primary aim) but it will also allow the ODLA to be repaid to the company over the period of the CVA which is usually 5 years and there is also no investigation into the director's conduct (D report).

In a CVA, the creditors will recover their debts ( although in most cases compromised) over a 5 year period which is almost always a better result than in CVL.

If you're company is experiencing any of the issues mentioned above, why not visit http://www.comanyrescue.co.uk/ for further information.