Loans between connected parties and write off

Loans between connected parties and write off

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Z Ltd has 3 directors Mr A, Mr B and Mr C. They are all directors and they each own 33% of the company's shares.

Z Ltd Z was set up to develop softwere for the financial services sector and it has received loans as described below to fund development of this software. The software development has not been successful and the directors now wish to close the company, no sales have been made and the software development was never completed.

Mr A has lent money to Z Ltd through his own company A Ltd of which he is a Director and main shareholder (66%). Mr B has lent money to Z Ltd personally and this has been treated as a Directors Loan. Mr C has lent money to Z Ltd through his own company C Ltd of which he is the Director and shareholder (100%).

The Directors now want to close Z Ltd and I need to clarify what to do with the loans as I act for Z Ltd and A Ltd.

My questions are

1. Are these connected parties for the loan relationship rules. If so, my understanding is that the loans can be written off by both parties (Z Ltd and A Ltd) with no tax implications. Z Ltd could then closed via a members voluntary liquidation.

2. If the parties are not connected and I write off the loan is this an allowable expense for A Ltd for corporation tax?

3. Also is the credit created in Z's accounts from writing off the loans and directors loan taxable?

4. If, after writing off these loans, Z Ltd then had no creditors presumably I could then proceed to close it via a members voluntary iquidation?

3. If the loans were not written off is the only option for the company to be closed by appointing a liquidator and using a creditors voluntary liquidation?

Thank you for any help.

Phil

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