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ESC16 or not?

ESC16 or not?

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The client is the sole shareholder and Director of a solvent trading company. He wants to employ an insolvency practitioner to instigate a formal members voluntary liquidation. Does he need to apply for ESC 16? I don't think he does as this seems to apply only to companies being dissolved under s652 & 652a CA

Also will Entrepreneurs Relief be available on the ulimate cash distribution?

Any help gratefully received

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Euan's picture
By Euan MacLennan
26th Nov 2010 12:11

Eh?

If the company is liquidated formally, the final distribution (after deduction of the insolvency practitioner's not inconsiderable fees) is treated as capital, i.e: as a capital gain on the original investment in the share capital of the company.  ESC C16 is a concession which merely extends the capital treatment to the final distribution when the company is dissolved informally, i.e: a striking off under s.1003 CA 2006, so is not relevant for a formal liquidation.

ER would normally be available to the sole shareholder of a trading company.

Why would the client not want to save himself the IP's fees by opting instead for a striking off?  If he did, ESC C16 obviously would be applicable.

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By bernard michael bayly
26th Nov 2010 15:37

ESC or NOT?

The IP is charging £3500 and the cash balance is £300000. The client feels to have it done "properly" is worth it

 

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By PennyC
28th Nov 2010 21:47

more money than sense, perhaps

there's nothing 'improper' or wrong about an informal striking-off under ESC16. But it takes all kinds, I suppose - I'm sure the IP is rubbing his hands - money for old rope. There is one question, though - what is the share capital? Perhaps formal liquidation is in fact required to avoid bona vacantia?

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By bernard michael bayly
29th Nov 2010 09:08

ESC 16 or not

The issued share capital is £2 being 2 ordinary £1 shares

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By Steve Holloway
29th Nov 2010 09:40

The issue ....

is presumably one of whether the £300k was part of the trading business working capital or might be viewed as an investment asset for ER purposes. I suspect the client is trying to buy his way to a favourable treatment!

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