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10th Jan 2010
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By alan.kennedy.smithkennedy
12th Jan 2010 10:18

back dating dividends

It is difficult to imagine a more depressing post!

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By luisat
25th Jan 2010 11:09

Please could you give me an example of how and when a liquidator

I was a company director and minority shareholder in what I believed to be a successful company. I was never allowed to see the books  but was responsible for the day to day running of it whilst the other two partners run their other businesses. In 2008 they suddenly stopped paying me and told me there was a lack of funds which came as a major shock. They tried to get the company struck off at companies house for not filing accounts since Nov 2006 and when I stopped that they promptly sent the company into liquidation.

My question is they had both taken out loans agains the company, one I knew about one I didn't they are now trying to write these off as directors dividends, claiming my wages take up my dividends (even though I have already paid tax on it). They have both claimed around £200k each and declaired them as dividends on a phone board meeting on the same day that they both agreed (I disagreed having not seen the accounts) to send the company into liquidation. The liquidator was appointed by their lawyer and says that this is lawful as at the time they took the money there were funds in the company. Although my thoughts are with no accounts filed until after they sent the company into liquidation, how did they know this?

Am I missing a legal loophole that you mentioned in your post to get the liquidator to go after these loans?

Also there is over £2 million misappropriated funds in total which the main director has used to fund his other companies (only he and his wife is a shareholder) and pay employees of this company, not to mention fund a luxury lifestyle. His lawyer and the company accountant (main directors best friend) is putting this down as expenditure although this has nothing to do with our company and is clearly the downfall of it. How do I prove it and get the liquidator to go after it?

 

I worked very hard for three years building up a company and feel an utter fool that I have been so green. Any help would be greatl appreciated.

 

 

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By User deleted
25th Jan 2010 14:24

Liquidator recovery of ultra vires dividends

Luisat

I refer to your post on the backdated dividend matter and how a liquidator could attend to the same.

I note you consider that two other directors have claimed £200k, each as dividends that you consider may have been backdated - am i correct?

Dividends can only be declared with reference to relevant accounts so on the face of it there maybe an issue and as always it depends upon the facts of the case and what the historical documentary evidence shows before you could confirm the position.

Clearly you make a serious allegation of £2million misappropriation to fund an associated company. This could be a significant issue.

In terms of proving the matter there are a number of ways which are far to complex to set out here but one thing you must remember is that you cannot force any liquidator into litigation. If you want to discuss your case issues with me then by all means get in touch with me and I will see what might be possible in light of the circumstances.

 

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By User deleted
27th Jan 2010 10:00

Overdrawn DLA debt and S419 implications cannot be wiped out by

I may be wrong but I don't think I am.  CTM61605 of HMRC's CT manual seems to indicate that if there is an overdrawn director's loan account (DLA) this can be reduced by way of dividend, salary, bonus etc.  But the issue is not when the dividend was paid but rather when the Debt was paid/cleared, i.e meaning when the DLA was no longer overdrawn as a result of the two Director's repaying their loans.  s419 tax is due if the loan is not repaid within nine months after the year end so a backdated dividend would not seem to clear the debt in time (as it was not physically paid then) hence making the s419 tax due.

On top of that if they have received this 'loan' interest free then there are p11D issues such as benefits in kind for the director's themselves.

if thses debts are still due to HMRC there is no way the would allow the company to be struck off as Companies house will always confer with HMRC to see if they are owed any money first.

Please tell me if I'm wrong as this is a very important matter as it something that occurs more oftern than not.

 

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By User deleted
27th Jan 2010 13:38

HRMC's view on dividends to clear overdrawn loans

It does appear you are correct that from HRMC's perspective, if the dividend is declared within 9 months of the year end that the overdrawn loan position could effectively be cleared.

As a consequence a Section 419 liability may not appear to arise. I understand that HRMC forgives a director who clears the debt within 9 months of the year end and does not delay granting the relief from the 419 liability until the next tax year.

However, of course the integrity of how the "clearance" is undertaken is not unimportant because whilst some people may consider a backdated dividend to be merely documenting what has already transpired, there maybe many instances when it is apparent that this could be proven not to be the case, where the backdating of the dividend could be shown to be precisely that. It is not inconceivable that allegations of forgery could arise and this is turn could possibly lead to effective reinstatement of the director loan being overdrawn and a Section 419 liability could result. I am not aware of such cases being reported. Are you?

I believe you to be correct that due to the benefits in kinds provisions consequential class 1A NIC will arise if the director does not pay interest on the loan at a commercial rate regularly during the relevant perod.

The problem of course in all of these things is not simply limited to HRMC. HRMC is a government agency and as you know it is interested in the enforcement of tax legislation.

The liability of a director who has backdated a dividend can extend to a company's liquidator. To the liquidator, HRMC is essentially another unsecured creditor. However, the liquidator in the interests of his or her fiduciary duties to the general body of creditors will consider application of and conceivably relevant enforcement of provisions in the Companies and Insolvency legislation. 

In relation to the specifics of your case, I do urge you to consider independent advice upon which you can specifically place reliance as clearly the above cannot be relied upon in such a context. It is part of a general informative and arguably interesting debate.

 

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By impala
07th Mar 2010 15:59

Backdated dividends

Thank you for this post.  I wonder if you could shed light on this similar situation.  The company for which I worked in a non-director capacity has been discovered by the liqudator to have issued shares to me and paid me a dividend on those shares for an 8 month period of trading.  Now, of course, as you rightly point out, they are after repayment as the dividends have been deemed illegal as there were no distributable profits available.  However, I had no access to the profit and loss accounts and the return to Companies House showing my share allocation is backdated by some 15 months.  So, although the directors of the company declared my payment as 'dividends' and then submitted the Companies House return to cover that period of time, in my view, these were salary payments for which PAYE and NI should have been returned to HMRC.  My understanding is that a Form 88 (2) + (3) must be filed within 15 days of the issuing of shares for a dividend to be paid - not 15 months!

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