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Can a dormant company lend money?

Can a dormant company lend money and then assign it and recovery through another company?

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Can a dormant company lend money to someone, with a contract for an amount just under £500,000? Does that count as trading? Especially if they declare no income / expenditure to coho?

Can that dormant company then assign the debt to another company to take on recovery? Does that constitute trading also?

Is this illegal or common practice and Im missing the boat?

Replies (57)

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By Matrix
18th Jan 2020 13:37

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Replying to Matrix:
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By whitevanman
17th Jan 2020 00:31

I think you will find that from a tax perspective, trading is not the determining factor. It is whether the company is carrying on any business. So, for example, a company that makes investments is of interest! Having a source of income within the charge to CT is the important thing for returns.

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Replying to whitevanman:
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By Matrix
18th Jan 2020 13:36

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Replying to Matrix:
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By Tax Dragon
17th Jan 2020 07:18

Why the hump? Initial replies (other than the get an accountant type) are, more often than not, at the least incomplete if not in fact incorrect - at least in part. (Some of mine are just plain wrong.) They don't always get made good. Yours has been; isn't that better?

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Replying to Matrix:
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By Matrix
18th Jan 2020 13:36

.

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Psycho
By Wilson Philips
16th Jan 2020 21:30

The usual question - why?

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By Tax Dragon
17th Jan 2020 07:26

I don't understand the question. Being dormant is a red herring. It doesn't mean that tax and law don't apply to you.

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By Aliceinwonderland
17th Jan 2020 08:20

Hi, I don't own any company, not trying to tax dodge or otherwise. My OH borrowed 1.2 million from a 'dormant' company. To recover it this dormant company has assigned the debt to another company without telling him of the assignment. Now they are seeking a bankruptcy order against him. So the question is can a dormant company lend money? If it lends money does that 'loan' and the subsequent receipt of interest on it, mean the company isn't dormant but is trading? The loan was for a house that the lender then sold. The assignment took place just before the funds from the sale came in. There is 100k left to pay.

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Replying to Aliceinwonderland:
RLI
By lionofludesch
17th Jan 2020 08:28

Aliceinwonderland wrote:

Hi, I don't own any company, not trying to tax dodge or otherwise. My OH borrowed 1.2 million from a 'dormant' company. To recover it this dormant company has assigned the debt to another company without telling him of the assignment. Now they are seeking a bankruptcy order against him. So the question is can a dormant company lend money? If it lends money does that 'loan' and the subsequent receipt of interest on it, mean the company isn't dormant but is trading? The loan was for a house that the lender then sold. The assignment took place just before the funds from the sale came in. There is 100k left to pay.

Your company might not be trading but it's not dormant. Confusingly, HMRC use "dormant" to describe something different to what Companies House think..

For Companies House to consider your company dormant, it would need to have no transactions at all, other than a few limited exceptions.

So, yes, your company can lend this money but it won't be dormant any more. Indeed, there's a question as to whether that well funded company is dormant before the transaction, though there's not enough information to say.

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By thomas34
17th Jan 2020 08:39

Several questions have been asked one of which is about assignment. If any debt is assigned a notice of assignment must be issued to the debtor by either the assignor or assignee failing which the assignment is void. This piece of information was missing from the original post.

The company is effectively assigning the contract also because the assignee can't rewrite the terms of repayment. The OP hasn't said whether the repayment terms have been breached.

I should have thought that the questions of dormancy were trivial in comparison with the assignment question and possible bankruptcy petitions.

It's clearly a legal matter.

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Replying to thomas34:
By johngroganjga
17th Jan 2020 08:56

thomas34 wrote:

I should have thought that the questions of dormancy were trivial in comparison with the assignment question and possible bankruptcy petitions.

To say they are trivial is putting it mildly, in my opinion. They have no bearing on anything whatever to do with the OP and her other half. But I agree with you that the OP is barking up the wrong tree entirely.

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Replying to johngroganjga:
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By thomas34
17th Jan 2020 09:24

Ah, the Other Half - I was too embarrassed to ask what OH meant.

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By Tax Dragon
17th Jan 2020 09:17

No wonder I was confused. The question asked wasn't anything to do with the actual question.

And where did the boat come in?!

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Replying to Tax Dragon:
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By WhichTyler
17th Jan 2020 10:02

Tax Dragon wrote:

And where did the boat come in?!

They're going to need a bigger one...

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By bernard michael
17th Jan 2020 10:07

Talk to an Insolvency Practitioner/solicitor ASAP.
The relevance of dormancy or not fades to nothing compared with the bankruptcy problem, which has a strict timetable

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Lisa Thomas
By Insolvency Practitioner
17th Jan 2020 10:23

Has a Bankruptcy petition been issued yet?

Has the threat/petition been issued by the original lender or the alleged assigned Company?

Has your OH taken insolvency advice?

Perhaps Bankruptcy is the right option but OH needs to take URGENT advice to ensure it is, or take urgent steps to avoid it.

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Replying to Insolvency Practitioner:
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By Aliceinwonderland
17th Jan 2020 11:03

Hey,
Bankruptcy petition has been issued - court date 29/1/2020. Currently working on getting it struck out as the amount they allege is owed is in dispute, if it even exists with assignment issues.
The petition has been issued by the company who the contract was assigned to not the original lender who he believes he has the contract with. Assignment took place on 15/10/2018. The address on the top is wrong of the notification is wrong. He moved on 25/2/2017 and notified them on the 2/2/2017 that he had moved, all other post was going to the correct address so they did have it. He also had post redirect etc which is provable.
Bankruptcy isn't the right option. He has no income and no assets and is unlikely to receive any of the same.

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Replying to Aliceinwonderland:
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By paul.benny
17th Jan 2020 11:22

Alice - I can understand that this is really difficult for you and your partner. Your partner really needs proper advice rather than relying on an internet forum.

If you're not already taking expert advice, Stepchange and Christians Against Poverty are specialists in debt support and don't necessarily charge fees

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Replying to Aliceinwonderland:
By johngroganjga
17th Jan 2020 11:26

As others have said, you probably need legal advice on your attempt to get the bankruptcy petition struck out. None of the points you raise in your question about the dormancy of the lender etc. are at all relevant.

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Replying to Aliceinwonderland:
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By bernard michael
17th Jan 2020 11:53

Aliceinwonderland wrote:

Hey,
Bankruptcy petition has been issued - court date 29/1/2020. Currently working on getting it struck out as the amount they allege is owed is in dispute, if it even exists with assignment issues.
The petition has been issued by the company who the contract was assigned to not the original lender who he believes he has the contract with. Assignment took place on 15/10/2018. The address on the top is wrong of the notification is wrong. He moved on 25/2/2017 and notified them on the 2/2/2017 that he had moved, all other post was going to the correct address so they did have it. He also had post redirect etc which is provable.
Bankruptcy isn't the right option. He has no income and no assets and is unlikely to receive any of the same.


It could be that it is just the right thing when considering your last sentence.
Get help ASAP to nip this in the bud - if that's what you want
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Replying to Aliceinwonderland:
RLI
By lionofludesch
17th Jan 2020 12:07

Aliceinwonderland wrote:

Hey,

[sigh]

Worse than "So," imho.

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Replying to Aliceinwonderland:
Lisa Thomas
By Insolvency Practitioner
17th Jan 2020 12:37

Are you using Solicitors to strike out the petition? If so they will be able to advise you on the legalities of the assignment etc.

If you manage to get it struck out as wrong party issued etc I presume the other Company will then simply serve to issue the petition and correct any technical errors you successfully challenge with the first petition.

An unsecured creditor only has to prove they are owed £5k or more to make someone Bankrupt.

If OH has no assets or income then Bankruptcy sounds like it may actually be the right option to write off the £500k of debt.

Can I ask how the debt arose, especially as it sounds as if it is unsecured?

If OH is successful in striking it out, how doe he intend to pay the debt back to the original creditor?

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Replying to Insolvency Practitioner:
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By Aliceinwonderland
17th Jan 2020 14:08

Nothing so simple.
He had a good property portfolio in London. His ex left him and decided she wanted half. He remortgaged to give her half. It was a short term bridging loan for 12 months. Then, even though he was paying every month on time and in full they brought in the LPA receivers as they refused to refinance and the LPA's sold a property valued at £610,000 for £450,000. Hence the debt arose and even though there was a cash offer for £550,000 on the table, the LPA's refused and carried on with the lower offer. So it was a secured loan. This is the legacy of it. So now he has nothing including the cash for legal advice here.
How can a company who is dormant and filing dormant accounts lend money in the first place let alone seek to remedy this. The assignment only happened as had the sale gone through their own accounts they would have no doubt been in trouble with the tax man and coho. Their SIC code says they provide management consultancy excluding financial management.

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Replying to Aliceinwonderland:
Psycho
By Wilson Philips
17th Jan 2020 14:20

You’ve got the question completely 4rse over t1t. You should be asking why a company that has lent money and is charging interest is filing dormant accounts.

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Replying to Wilson Philips:
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By Aliceinwonderland
17th Jan 2020 15:43

Exactly! And why would they?? Other than wanting to hide some dodgy money laundering - is there a circumstance where they are allowed to do this??

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Replying to Aliceinwonderland:
Psycho
By Wilson Philips
17th Jan 2020 16:13

Who knows, and who cares? It has no relevance to your and your OH’s problems.

Attempting to conceal a transaction, for instance, by filing incorrect accounts does not invalidate the transaction. However defective the accounts, that is purely a matter for the Registrar and has nothing to do with your issues.

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Replying to Aliceinwonderland:
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By JoF
17th Jan 2020 16:57

If by your (edit) skewed (end of edit) logic the dormant company could not lend the money and by doing so they are committing money laundering offences, does that not therefore mean your OH committed an offence by accepting the money?! He is in receipt of the proceeds of a crime.

Out of interest (OK more just being nosey) what date was this loan made, what date was the assignment and what date were the last dormant accounts made up to?

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Replying to JoF:
Psycho
By Wilson Philips
17th Jan 2020 16:33

Please don’t give them any idea that their logic might have some merit!

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Replying to Wilson Philips:
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By JoF
17th Jan 2020 16:56

Oh gawd, no!

Alice - your logic has no merit!!!!! None whatsoever!!!

I will edit

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By Ruddles
17th Jan 2020 11:44

Setting aside the legal niceties and whether or not the assignment is valid, is the borrower’s position affected by the assignment? Presumably company 1 could just as easily have petitioned for bankruptcy?

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Replying to Ruddles:
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By Aliceinwonderland
17th Jan 2020 14:00

I guess this is the question - how does a dormant company lend money, and then seek a remedy for it if they arent supposed to be trading?

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Replying to Aliceinwonderland:
Psycho
By Wilson Philips
17th Jan 2020 14:14

Please, please, stop with the dormant point- it is of no relevance. Dormancy is a consequence of the company’s (in)activity, not the other way round.

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Replying to Aliceinwonderland:
RLI
By lionofludesch
17th Jan 2020 14:17

Aliceinwonderland wrote:

I guess this is the question - how does a dormant company lend money, and then seek a remedy for it if they arent supposed to be trading?

Well, again, a company can be not trading and yet not be dormant. Trading means having a trade. Dormant means having no transactions at all. Buying an asset isn't trading. But your company is no longer dormant.

Why do you so desperarely need the company to be dormant ? What would the problem be if they weren't ?

And why aren't you looking at the more serious problems identified above ?

You're looking at the detail and ignoring the elephants in the room.

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Replying to lionofludesch:
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By Aliceinwonderland
17th Jan 2020 15:24

Actually no, all elephants in the room are well and truly under the spot light. This particularly large elephant is the one we are struggling on as it underpins one of the arguments to raise in court.
First off, its not my company.
How can a lender be a dormant company?
Is lending money for the purpose of making a profit not trading?
Does the payment of interest not amount to a transaction?
Rather than assuming we're not doing something just a simple answer for the idiots you think we are would do.

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Replying to Aliceinwonderland:
RLI
By lionofludesch
17th Jan 2020 15:35

Aliceinwonderland wrote:

Actually no, all elephants in the room are well and truly under the spot light. This particularly large elephant is the one we are struggling on as it underpins one of the arguments to raise in court.
First off, its not my company.
How can a lender be a dormant company?
Is lending money for the purpose of making a profit not trading?
Does the payment of interest not amount to a transaction?
Rather than assuming we're not doing something just a simple answer for the idiots you think we are would do.

Ok - I can see you've got it all in hand.

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By Aliceinwonderland
17th Jan 2020 14:12

I suppose it comes down to : can a dormant company enter into a contract to lend money, have the interest on that loan paid to them and then seek remedy if the money isnt paid? Does this count as trading?

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Replying to Aliceinwonderland:
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By bernard michael
17th Jan 2020 14:15

Aliceinwonderland wrote:

I suppose it comes down to : can a dormant company enter into a contract to lend money, have the interest on that loan paid to them and then seek remedy if the money isnt paid? Does this count as trading?


I thought it was the assignee that was pursuing the debt not the assignor, which has no longer has a claim
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Replying to bernard michael:
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By Aliceinwonderland
17th Jan 2020 15:30

The assignee is pursuing but no notice was ever served of assignment.
So intention is to try and get this thrown out as the assignment isn't valid.
In which case, can the assignor have a valid claim if they are a dormant company who are not trading in their accounts from about 2015. In fact should they have even lent the money in the first place? Its this bit, about what a dormant company can and cant do that is proving difficult to unearth answer to. Can they lend money? Is that classed as trading? Theyve had 25k of interest every month - can they do that? Is that trading? If it is - they cant be dormant - so have they done anything wrong submitting dormant accounts? If so what?

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Replying to Aliceinwonderland:
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By Tax Dragon
17th Jan 2020 15:43

Aliceinwonderland wrote:

The assignee is pursuing but no notice was ever served of assignment.
So intention is to try and get this thrown out as the assignment isn't valid.
In which case, can the assignor have a valid claim if they are a dormant company who are not trading in their accounts from about 2015. In fact should they have even lent the money in the first place? Its this bit, about what a dormant company can and cant do that is proving difficult to unearth answer to. Can they lend money? Is that classed as trading? Theyve had 25k of interest every month - can they do that? Is that trading? If it is - they cant be dormant - so have they done anything wrong submitting dormant accounts? If so what?

Your last question should be "if so, so what?" What's it got to do with you? Your other half is still potless. That won't go away just because someone may, or may not, have filed incorrect accounts.

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Replying to Tax Dragon:
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By Aliceinwonderland
17th Jan 2020 15:52

A company that is dormant, or not trading, cant seek a remedy for debt and so cant bring a bankruptcy application against another ...

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Replying to Aliceinwonderland:
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By Tax Dragon
17th Jan 2020 16:07

Aliceinwonderland wrote:

A company that is dormant, or not trading, cant seek a remedy for debt and so cant bring a bankruptcy application against another ...

For one last time (for me, anyway): it's the other way round. If a company has transactions, it's not dormant. So you are right in the sense that it can't be dormant and do things; you are wrong in the sense that being dormant stops it doing things. Doing things stops it being dormant. Being dormant doesn't stop it doing things.

If you need telling again, please just reread the thread. The same point has been made again and again and again. And again now.

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Replying to Aliceinwonderland:
Psycho
By Wilson Philips
17th Jan 2020 16:08

Aliceinwonderland wrote:

A company that is dormant, or not trading, cant seek a remedy for debt and so cant bring a bankruptcy application against another ...

Who told you that?

The point is though - the company clearly isn’t dormant.

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Replying to Aliceinwonderland:
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By bernard michael
17th Jan 2020 15:46

Aliceinwonderland wrote:

The assignee is pursuing but no notice was ever served of assignment.
So intention is to try and get this thrown out as the assignment isn't valid.
In which case, can the assignor have a valid claim if they are a dormant company who are not trading in their accounts from about 2015. In fact should they have even lent the money in the first place? Its this bit, about what a dormant company can and cant do that is proving difficult to unearth answer to. Can they lend money? Is that classed as trading? Theyve had 25k of interest every month - can they do that? Is that trading? If it is - they cant be dormant - so have they done anything wrong submitting dormant accounts? If so what?

Today is the 17th and you have a bankruptcy hearing on 29th. Can you say if you have instructed solicitors/insolvency practitiones or other learned people to handle it ?? A yes or no would suffice

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Replying to Aliceinwonderland:
Psycho
By Wilson Philips
17th Jan 2020 16:02

Aaaasrrrggghhhh

A company, dormant or not, can do anything that it wants, subject to restrictions imposed by its Articles etc or to any regulatory constraints.

It is the activity of the company that dictates its status. The status does not dictate its activity. If it has been filing dormant accounts when it should not have been that is a matter for Companies House but has no relevance to the ability to make, and seek recovery of, loans.

Should the company, for instance, have had a consumer credit licence? For the utter avoidance of doubt, compliance or otherwise with such a requirement has absolutely sod all to do with the dormant/active status of the company. And the dormant/active status of the company has absolutely sod all to do with its requirement or otherwise to hold such a licence. I trust that we will no longer see the word “dormant” in any of your posts.

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Replying to Aliceinwonderland:
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By Tax Dragon
17th Jan 2020 15:20

Aliceinwonderland wrote:

I suppose it comes down to : can a dormant company enter into a contract to lend money, have the interest on that loan paid to them and then seek remedy if the money isnt paid? Does this count as trading?

This was a red herring at 7.26 this morning and you're still talking about it?!

None of what you are asking has anything to do with accountants. You have our sympathy, but you need help with the law, not with accounts or tax.

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Replying to Tax Dragon:
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By Aliceinwonderland
17th Jan 2020 15:41

Forgive me I thought the obvious place to ask about what constitutes 'trading' and what constitutes 'dormant' were the people who submit company accounts and make the decision on what those accounts look like .... thought it seemed round here!

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Replying to Aliceinwonderland:
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By whitevanman
17th Jan 2020 16:00

If a company has £1m cash at bank, it may not, strictly, be dormant but many people might treat it as such.
If that company then loans the money to a third party at interest, it is definitely not dormant. That said, it is wholly irrelevant to the issues you raise. The company should make returns to CH and HMRC.
None of that would however, render the making of the loan in some way, illegal or void (which is what you seem to be trying to get at). So, as others have said, stop banging on about "Dormant" and focus on the really important things (which, again, others have covered).

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Replying to Tax Dragon:
Psycho
By Wilson Philips
17th Jan 2020 15:42

It was a red herring long before then.

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By Tax Dragon
17th Jan 2020 15:45

Fair comment.

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By thomas34
17th Jan 2020 16:18

The last, last word - promise. The OP (assume it's female but who knows) is trying to absolve her OH's debt through a technicality (dormancy or otherwise of a company). We're not sure how much he borrowed (£500K originally but might have been £1.2M re later post) and purportedly owes £100K. I personally hope he gets taken to the cleaners. If the legal people get hold of this they'll get their money eventually and the legal fees might double the debt. Good thread though.

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