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Intercompany debt

Parent company takes over debt that is owed by one subsidiary to another subsidiary

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?

 

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17th Nov 2018 07:58

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.

Thanks (1)
By Ruddles
to johngroganjga
17th Nov 2018 08:43

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.

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By aaoaao
17th Nov 2018 13:01

Thank you both

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By aaoaao
17th Nov 2018 13:01

Thank you both

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17th Nov 2018 20:57

What's the difference between this and A donating 10k to C?

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to Tax Dragon
17th Nov 2018 21:21

The P&L effect

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