Elliot Green highlights a case involving an Overdrawn Directors Loan Account that every director should commit to memory.
The case of Bass v Buchanan [2021] EWHC 2740 (Ch) highlights the reason that you cannot backdate your salary, and is an important decision handed down by Insolvency and Companies Court Judge Burton.
This was a case in which the company, Bronia Buchanan Associates Limited, went into Creditors Voluntary Liquidation on 2 December 2014.
The Liquidators brought legal proceedings against Bronia Buchanan in respect of what was, in a nutshell, an Overdrawn Directors Loan Account.
An Overdrawn Directors Loan Account might be considered one of the more straightforward legal claims that a Liquidator might bring in a Liquidation.
This case demonstrates, however, that whilst the Liquidators were undoubtedly victorious, there is nevertheless a risk with any piece of insolvency litigation. One of the reasons there is always a risk is perhaps that the Liquidator enters office as stranger to the company’s affairs. He or she has to piece the jigsaw puzzle together and assess what really happened, dealing with any conflicting stories that might sprout.
The part of the Liquidator’s Application brought against Bronia Buchanan that really put the cat among the pigeons was the following: “A declaration that the reclassification of the sums outstanding on the director’s current account on 10 September 2014 as ‘drawings’ was ineffective to release Ms Buchanan’s liability to the Company.”
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