UK Directors Loan repayment on death

[Pat21]

Hi
Can anyone help with my query.
A director of a limited company died and was owed money from the company Directors Loan account. His next of kin signed over his shares to the remaining director. It subsequentLet came to light that the deceased was owed his share of the DLA but the remaining director is refusing to pay the money to his next of kin. There was no other provision stipulated in the company articles. The director insists that as he was ‘gifted’ the shares by the next of kin, he is also entitled to all the money in the DLA. Is this the case? Or could the next of kin insist on being paid the deceased’s share of the director’s loan?

 

[Steve-LevelUp]

I think we can break this down into two parts.

1. Is the loan repayable to the next of kin.
2. Was it a loan or a gift.

The first is relatively easy. Spratt Endicott have some references regarding loans to friends, which must be repaid upon death (https://www.lexology.com/library/detail.aspx?g=d938a4da-941d-40b5-9ee6-12669ed1c845)

As to whether it was a loan, or a gift, I think the accounting records can speak to that. If it was a loan, then it would be clearly reflected in the loan account (as you have stated)

If it was a gift, (otherwise called a Capital Contribution) then it would have been reflected as such. Although there may not be any paperwork, it was clear that the funds were loaned to the Company, and that the Company acknowledged that it was a loan (by the way it recorded the receipt.)

Depending on how much money is involved, it may be worth while securing legal advise on this matter.