I have just taken on a client who has a company (dental practice) which as a result of writing down their £800k goodwill value to obtain CT relief in the company they have created a negative balance sheet. The underlying profits of the company are sound and will repair the balance sheet position within 24 months of trading without a problem and they have sufficient cash to meet the payment of their creditors as they fall due without a problem so they are happy they are trading from a solvent position.
They have recieved an offer to sell the shares in the company for £1.2M and would like to sell and obtain entrepeneurs relief on the share sale rather than a trade/assets deal which would leave them with significantly less cash than they would like (and therefore they have ruled out a trade/asset deal completely).
However we have identified that over the 4 years of trading they have been extracting income via dividends and have technically paid themselves illegal dividends.
We have discussed that they might face HMRC challenge on the efficacy of those dividends and that an insolvency event post sale may bring a liquidator to them to ask for the repayment of the dividends. They are informed that the buyers wish to hive up the trade and assets of the company in to their own company post sale and it is hoped to build a timetable in to the purchase agreement to oblige them to do so within 12 months of sale. It is hoped that this hive up would de-link them from future solvency issues and that risk would be eliminated.
The lawyer on the deal has advised that as well as a liquidator the new shareholders post sale could technically pursue them for repayment of those extractions and this has spooked the sellers as they don't wish to have any latent liabilities.
Obviously the trade/assets deal would seem to be a better solution but already ruled out. My questions are;
1 - Is it possible in this circumstance to hive up/down a trading entity to sell by the existing owners rather than selling the existing company?
2- Is the threat of pursuing the current shareholders (by HMRC/Insolvency Practitioner/New shareholders) a real risk and if so can it be elminated or mitigated?
Happy to provide any general info missing and would welcome any high level advice. This is well above my own skill set and anyone with expertise willing to engage on this implementation if we can get buyer approval would be helpful.