Losing a potential client – sometimes it happens

The nature of my work requires me to offer clear and transparent advice. I am completely up front with clients from the outset that if I consider there to be a concern over conduct or possible repercussions for them personally over antecedent transactions or an overdrawn director loan account then we will discuss it.

The client may not want to hear it but I would prefer to tell them at the start. Most clients accept and understand your position which results in them engaging you and then dealing with the issue in an appropriate manner. However not all will behave like that!

An interesting example was a director I spoke to eighteen months ago. He explained that he ran a construction business and apart from some small suppliers, the main creditor was HM Revenue & Customs ("HMRC") who had started pursuing him for their debt. A fairly standard equation you would say.

I reviewed the last accounts and I pointed out to him that he had an overdrawn director loan account and owed the company around ￡50,000 according to the last accounts.

“But I don’t have any money to repay it” stated the director. I explained that as part of the assignment we would review his financial position so we could understand about whether he could repay the loan or not.

“I do own a house” he then told me and “the equity is about ￡280,000”. To summarise I explained that in my view he would need to repay the loan account in full and that we would need to ascertain whether his loan account may have increased since the last accounts. He then proceeded to push me to do a deal with a view to repaying a nominal amount of what was due to be repaid for his overdrawn director loan account. It was an uncomfortable conversation but not an uncommon one and I explained that it was not feasible in these circumstances. I knew there was every chance that I was unlikely to see him again after the meeting despite discussing at length that the position was unfortunate but he had duties as a director and that repaying his loan account was the right thing to do.

Obviously it was not the advice that he wanted to hear and I never heard from him again.

I have now noticed that the company has been dissolved. I would like to think he repaid his loan, repaid HMRC and wound down the affairs of the company in an orderly manner before dissolving the company.

However, I suspect that has not happened. The more likely outcome is that he has managed to dissolve the company and walk off with funds that should have been paid to HMRC amongst other creditors. Unfortunately I see this scenario all too often.