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Assets and liability has been incorrectly recorded

How to correct the mistake

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I am approached by a potential client, three years ago purchased two hotels ( Hotel A and Hotel B)  under the same limited company (COMPANY JJ) , recently he sold one of the hotels (Hotel B) but the bank would not release the sales proceeds to the client, as the assets and liability was recorded in a different limited company ( COMPANY W, which was formed to manage the daily running of the hotel, so they can monitor the sales and purchases separately ).

The bank is asking client to amend the annual account to move the assets and liability from COMPANY W to COMPANY JJ ( who has the legal title)

Client ask if it is possible to appoint COMPANY JJ as the parent company of the COMPANY W and not need to amend annual account.

Or, does the client must close Company W and transfer everything including vat, payroll  and corporation tax to Company JJ.

Replies (12)

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paddle steamer
By DJKL
09th Nov 2021 14:27

So what has bank done with the sales proceeds?
Where do the funds rest?
What has bank used them for?
Is bank owed money secured on sold hotel?
What security do they hold and from which company?
In whose name is any loan agreement re any such borrowing?

Why are thinks as they are, who caused the issues, how?

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Replying to DJKL:
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By ShannonSmith
09th Nov 2021 14:31

The bank is holding on the sales proceeds and said until client amend the annual account for both companies , they will not release the money to client.

Yes the bank is owed money secured on the sold hotel.

The security they hold is both hotels and COMPANY JJ

loan agreement is under COMPANY JJ

The problem is caused by mis understanding between client and accountant.

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Replying to ShannonSmith:
paddle steamer
By DJKL
09th Nov 2021 14:52

The asset likely needs to be in accounts of its owner.

The liability likely needs to be in name of party which is liable, presumably secured on the asset.

A group situation may or may not solve matters for the bank but it does not address the main issue.

I am also a bit nervous of what you have here if there was vat paid on the purchase of the hotels or if there was a TOGC ,whilst the op co likely had taxable outputs and inputs what of the rightful owner of the asset, has the client wrongly claimed TOGC or wrongly claimed input tax?

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Replying to DJKL:
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By ShannonSmith
09th Nov 2021 15:10

Thanks a lot . Did not claim VAT

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Replying to ShannonSmith:
paddle steamer
By DJKL
09th Nov 2021 16:02

But was it purchased as a TOGC?

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Replying to DJKL:
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By [email protected]
10th Nov 2021 06:26

Thanks a lot , DJKL. The purchase is a TOGC. Maybe suggest client to ask the bank to transfer the legal title to COMPANY W, putting COMPANY JJ as the holding company.

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By paul.benny
09th Nov 2021 14:33

DJKL asks lots of pertinent questions.

Perhaps more importantly, if you're not able to work out how to resolve this, perhaps it's not wise to take on this client.

There's no shame in saying that something is outside your expertise and turning down work as a result.

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Replying to paul.benny:
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By gillybean04
09th Nov 2021 17:30

Sometimes it's the smartest thing you can do! (admitting it's outwith your expertise/capability).

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By Leywood
09th Nov 2021 15:48

My alarm bells are ringing very loudly.

Have you seen the two sets of accounts?

How are you so sure about the VAT position?

Wise to answer all of DJKL's questions, if you cannot I would let this client walk on by.

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By Ammie
12th Nov 2021 11:13

What a mess! We are not talking about a rounding difference here!

I would be very concerned that such a muddle has been made of what should be straightforward.

How does one company sell an asset owned by another? The accounts of the legal title holder should reflect ownership and the sale must be effected by that same legal title holder. Not a difficult principle to grasp.

How this situation arose would gravely concern me and, in my mind, question the practices of those behind the circumstances.

There seem to be actions beyond carelessness here and possibly more to the case. Not sure I would want any association with it.

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By Wiganer Elaine
12th Nov 2021 11:38

You mention that this is a "potential" client. Have you considered whether the client actually knows what has happened and is trying to "pull a fast one" by changing accountants so that the money can be released?
Sorry to be so cynical but I think you should be very wary about taking this on!

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By Arcadia
12th Nov 2021 11:55

I would just change the accounts to reflect the true underlying position of legal title, and the true borrower. The accounts are wrong, so change them. Now its been pointed out to them the directors should do this anyway. Make sure you see a copy of the loan agreement, and check title and charges at the land registry. Follow the provisions in the Companies Act re filing revised accounts. Not sure why bank care, but presumably money laundering, ie sending the proceeds to a company that doesn't own the asset. Telephone the previous accountant for a takeover discussion to ask if there is anything you should be aware of.

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