RPS Policy regarding offset of overdrawn Directors Loan Account balances
The basis for the RPS approach is contained in Rules 14.24 (Administration) and 14.25 (Liquidation) of the Insolvency Rules 2016. This rule requires the RPS to set off payments due from the directors/employees to the company against sums that RPS might pay them (in lieu of the company paying) in respect of redundancy pay etc. This is also enshrined in case-law reference – Secretary of State –v-Wilson & BCCI EAT. The Wilson case law deals with the 1978 predecessor to the ERA 1996 and the Insolvency Rules 1986 (which were replaced by the above rules in 2016).
This case law is also in line with Westwood –v- The Secretary of State for Employment, which, although principally dealt with CNP mitigation, confirmed that the liability of the Secretary of State cannot exceed that of the Insolvent employer.
As a result of the RPS policy, the overall debt owed to the company by the debtor (the director/employee) would be reduced. The RPS steps in as statutory guarantor to make payments according to the debts owed by the employer in Sections 166 and 184 ERA. This is offset against money owed to the employer by the director/employee and as per rules 14.24 and 14.25 of Insolvency Rules 2016. However, in turn, this reduces the RPS claim in the insolvency. Any surplus from the RPS set off from the amounts owed by the director/employee would then be owed in the insolvency.