Company A (Parent)
Company B (100% Subsidiary of A)
Company C (100% Subsidiary of B)
Company B stopped trading several years ago and has no cash available - but it owes Company C £10,000
Company A (parent) has offered to take over the debt that is owed by B to C. Essentially, Company A will make annual payments of £1,000 to Company C to clear down the debt.
Is there a technical term for this type of arrangement? I would like to record it properly in the books as well as have a formal document laying out the terms of this arrangement. Any advice, so that when it comes to audit, we can show them on paper what we are doing?
Replies (6)
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This is a trivial transaction. As long as you make the right entries to keep the inter-company accounts in balance (not difficult) that will be the end of anyone's interest in the matter.
The technical term is novation and strictly can only be done with proper documentation. In a group situation though and given the amounts involved no-one, as John says, is likely to care.
EDIT - this was supposed to be a response to the OP.