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Distribution in Specie upon MVL liquidation

Distribution in Specie upon MVL liquidation - BIK, S455 charge etc

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Client is closing down a solvent company with around £200k in assets.  He is working with a liquidator but the liquidator won't answer questions re tax, and referred client back to us.  The liqudiator has proposed a distribution in specie for a particular asset which is worth around £190k, so most of the liquidation distribution but proposing to transfer it a few weeks before the actual official date of liquidation and distribution of the remaining £10k or so of assets (bank balance).

So, potentially for a few weeks, the client has the asset before formal distribution.  Is this a problem?  I am worried about whether it invoked a taxable benefit in kind (beneficial loan interest) or a S455 tax charge on a loan.  Or am I worrying over nothing?

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By 1 2
28th Jan 2019 14:01

Surely the liquidator can only distribute something (whether cash or in specie) once they are liquidator. If the owner is to take it prior to the liquidator's appointment, then at the time it's taken it's not a distribution from the liquidation. Ie I agree with you.

S.455 shouldn't be relevant though, as presumably the liquidator can formalise the distribution in specie shortly after their appointment, comfortably within the 9 month of period end window?

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By Ken Howard
28th Jan 2019 14:47

thanks for that, it's the liquidator who'll be doing the distribution in specie, but they're not willing to stick their neck out and confirm the tax position!

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Lisa Thomas
By Lisa Thomas
28th Jan 2019 15:38

This makes no sense to me - The distribution can only be made by the Lqr post Liquidation so I don't see how they can back date it to pre Liquidation.

Have they explained why they want the transaction to be backdated?

I do agree the tax position though as we don't give tax advice and always leave it to the existing tax advisers.

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By Manchester_man
28th Jan 2019 21:21

Sounds like (wrongly though it may be) an 'of the records' "you're the only interested party, we are going to be doing a formal distribution in due course, take the asset now if you want and we'll deal with the formalities later".

I struggle to imagine a liquidator would do this, but it is either this, or there are details we (you) are not aware of.

I'd call the liquidator and ask why they are proposing this?

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Lisa Thomas
By Lisa Thomas
19th Feb 2019 16:05

Yes it raises alarm bells to me. I can't see how any entrepreneurs relief can be validly claimed if the monies are paid out pre Liquidation...

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Psycho
By Wilson Philips
19th Feb 2019 16:39

I may have missed the point here, but is the questioner not suggesting merely that the liquidator is willing to make an interim distribution, ie after appointment but in advance of the final distribution of remaining assets? I have seen this done plenty of times with solvent liquidations - usually subject to an indemnity given by the shareholders.

There seems to be some misunderstanding here (including, somewhat worryingly, by an insolvency practitioner) of the steps involved in an MVL - appointment of liquidator, realisation of assets and/or distribution(s) of cash/assets, dissolution of company.

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Lisa Thomas
By Lisa Thomas
21st Feb 2019 11:34

My reading of this comment from the OPs original post:

"proposing to transfer it a few weeks before the actual official date of liquidation"

is what concerns me.

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Replying to Insolvency Practitioner:
Psycho
By Wilson Philips
21st Feb 2019 12:02

I agree that the wording is less than perfect. As I understand it, liquidation is usually a process, not an event. So, they presumably mean either date of appointment of liquidator, or date of dissolution (effectively distribution of remaining assets). It seems that you favour the former, and I the latter.

Perhaps the questioner would be good enough to clarify exactly what they mean by "actual official date of liquidation"?

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