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Moving assets from a limited company

Moving assets from a limited company

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I have been asked for some advice by a friend, off the record, but can't help as I don't deal with limited companies.

Mrs A owns 24% of a limited company and the director, Mr B owns the other 76%.

Mr B has recently opened the new limited company, of which he owns 100%. The new limited company will continue trading exactly as the old one did. Mr B has moved all of the assets from the original company to the new one. He is now dissolving the original company. Not sure why he is doing this, but suspect it could relate to outstanding corporation tax / VAT bills. Effectively, Mrs A now owns 24% of nothing.

Mrs A has provided the following figures from the last set of abbreviated accounts.

Debtors 15,000
Cash 22,000
Total Assets 37,000

Mr B Directors Loan 43,000
Other Liabilities 32,000
Total Liabilities 75,000

Current net worth -38,000

Fixed Assets 182,000
Depreciation 182,000
Net Book Value 0

The company was also carrying forward a trading loss of approximately £38,000. This was approximately £50,000 the year before.

I can see that the limited company owed Mr B more than it had, in terms of cash and debtors. But Mrs A has asked if she can take this further, as the fixed assets would have had a value, even though they'd be fully depreciated. The fixed assets that Mr B transferred to his new company must have been worth approximately £100,000 at their current value.

Can he move the assets without her permission? And can she do anything about the fact that she now earns 24% of nothing?

Sorry I can't provide more information. This is all that I was given.

Replies (10)

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By johngroganjga
22nd Mar 2016 16:38

"And can she do anything

"And can she do anything about the fact that she now earns 24% of nothing?"

Yes she can put the company into liquidation and expect the liquidator to reverse any transactions at undervalue.

The first thing she must do is to object to the striking off.

Then she needs to see a solicitor experienced in corporate insolvency.  

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By Gmb
22nd Mar 2016 20:15

Yes She can do a hell of a lot.

Agree with above 100%; that's the first call to action.Officially object to the striking off.

In the interim I would also be contacting the accountants acting for the original company.I would request copies of full financial statements, Directors Loan account transactions, Schedule of Fixed Assets and Capital Allowances claimed.

 

I

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Hallerud at Easter
By DJKL
22nd Mar 2016 22:41

Caution re costs is needed

Gmb wrote:

Agree with above 100%; that's the first call to action.Officially object to the striking off.

In the interim I would also be contacting the accountants acting for the original company.I would request copies of full financial statements, Directors Loan account transactions, Schedule of Fixed Assets and Capital Allowances claimed.

 

I

If she is not a director she has no entitlement to receive the above list, as a shareholder she has a right to the full accounts from the director (not the accountants) , that is all, and of course given a 24% shareholder her fellow shareholder, presumably holding 76%, has rights to pass at duly convened meetings  special resolutions including winding up.

Now whilst she can (ideally via a solicitor) raise queries re values re connected party sales, the catch is that she is going to start incurring not insignificant costs.

The whole presumption of any value (on a net asset basis) re the company is resting, it appears, on a round sum valuation of the fixed assets-whilst they may be worth the £100,000 mentioned they may not, often fixed assets (presume plant etc not buildings/land) realise much less than anticipated, anyone who has been a creditor in insolvency receiving statements from a liquidator knows this to their cost.

Step one is certainly request full accounts (from the director-recorded delivery or served request) but before chasing her rights she needs clear professional advice re avenues open, costs of various measures, chances of recovering more than she expends. Objecting to the striking off may well be the first step to buy some time but a pragmatic, third party evaluation of outcomes is needed before much more than that is put in train.

We are given no real idea re any other value like goodwill resting within the company and a realistic appraisal of this and other intangibles is also needed.

An initial consult with a solicitor and a firm agreed cost plan re action would be where I would start the process.

Useful link to shareholder rights below:

http://www.altmorebusinesslaw.com/voting-rights.html

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By Gmb
22nd Mar 2016 23:53

You've added Nothing to the Party

She's a Director. in accordance with the original post. I don't see the relevance of your post .

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By johngroganjga
23rd Mar 2016 07:47

Director

Gmb wrote:

She's a Director. in accordance with the original post. I don't see the relevance of your post .

You may be clairvoyant, and I'm not, but nowhere in the original post does it say that Mrs A is a director, although of course she might be. On the contrary, it refers to Mr B as "the director", suggesting strongly that he is the only one.

DJKL's post sounds a useful note of caution - take care not to throw good money after bad, be realistic about the realisable value of the fixed assets etc. One point I would add is that the first beneficiaries of any success in realising value from the fixed assets will be the creditors. Only if there is any value left after they have been paid in full, and the liquidator's fees have been paid, will Mrs A get a penny.

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Hallerud at Easter
By DJKL
23rd Mar 2016 10:07

Not sure she is

Gmb wrote:

She's a Director. in accordance with the original post. I don't see the relevance of your post .

Not sure she is a director, maybe the OP can advise, certainly I read the phrase "the director" re Mr B as meaning the singular one and only.

Of course if she is a director the first part of my post is not on point, this is why I used within my post the first word "if".

I  think my caution re costs as a point stands, as someone who on a pretty regular basis deals with issues and disputes with others I know full well the limitations within the legal process; from winning a case in court where after costs one is out of pocket to having solicitors/advocates talking a good game pre match but not so hot on the pitch. ( have two land encroachments grumbling along accruing costs re solicitors letters as we speak)

Whilst most of our disputes are re land/planning etc, the odd one centre on  contract performance, employment and falling outs amongst previous business associates. I am pleased to say that re the latter we have always managed to avoid the courts and settle (pragmatically rather than amicably,) however they have still been expensive,£5-£10k of fees before court is not  uncommon and the court process does tend to see fees/costs accrue even faster.

Maybe it is because I had solicitors as parents that I have inherited my father's deep caution rethe uncertainties of  litigation and its costs

And of course legal action re oppression of minorities certainly needs deep pockets, it is tricky and time consuming to demonstrate and lead evidence that  it has occurred.

Experience tells one that irrespective of the law  that we  learned  for our exams, possibly at university or as  part of our training contracts, the reality of its manifestation, especially re dispute resolution, if very different from the textbooks.

So , with the greatest respect, I don't see the relevance of your objection to my post.

Edit-crossed with OP further post confirming she is not a director.

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By Lee11_1989
23rd Mar 2016 09:44

Thanks

Thank you for the advice. I can confirm that Mrs A is not a director of the company, only a shareholder. 

I pass the information onto her and it is up to her how to proceed. I think the business still has significant worth and it'd be worth her taking this further. There is a considerable amount of tangible, fixed assets that would probably carry a very conservative value of 60-80k. All of which, Mr B has moved to his new company. I would also imagine the goodwill has a good value, as it's a well known, long standing business.

Thank you again.

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By Duggimon
23rd Mar 2016 10:20

Goodwill

Lee11_1989 wrote:

Thank you for the advice. I can confirm that Mrs A is not a director of the company, only a shareholder. 

I pass the information onto her and it is up to her how to proceed. I think the business still has significant worth and it'd be worth her taking this further. There is a considerable amount of tangible, fixed assets that would probably carry a very conservative value of 60-80k. All of which, Mr B has moved to his new company. I would also imagine the goodwill has a good value, as it's a well known, long standing business.

Thank you again.

 

I don't know what the company does but if it's a company that is built solely on the work done by Mr B then I would hesitate to put any value on the goodwill at all as once he's left there is essentially no company. I agree with the above posters that the depreciated value and the nil transfer value of the assets will not stand up though but your friend will have to weigh up her 24% of the realistic value of the assets less the creditors at cessation against the cost and hassle of pursuing the matter in court.

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By Lee11_1989
23rd Mar 2016 11:20

Goodwill

The business is within the leisure industry. It has about 20 employees. The director (Mr B - the only director), simply takes care of the admin/running of the business. He has zero front of house presence. He could be replaced by anyone who is capable, and the customers wouldn't know the difference. Therefore I think the businesses reputation and name is the where the value of goodwill lies.

I understand that sometimes it's not worth spending a significant amount of money pursuing these matters, as Mrs A might end up out of pocket. Mrs A sees this as a matter of principle. She doesn't want Mr B to effectively continue running the exact same business that she owns 24% of, under a different limited company that she owns nothing of.

Surely, in very basic terms, he's stealing her 24% shareholding? I know that legally he isn't, but in principle he is.

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Hallerud at Easter
By DJKL
23rd Mar 2016 12:29

Up to client but principles can be expensive

Lee11_1989 wrote:

The business is within the leisure industry. It has about 20 employees. The director (Mr B - the only director), simply takes care of the admin/running of the business. He has zero front of house presence. He could be replaced by anyone who is capable, and the customers wouldn't know the difference. Therefore I think the businesses reputation and name is the where the value of goodwill lies.

I understand that sometimes it's not worth spending a significant amount of money pursuing these matters, as Mrs A might end up out of pocket. Mrs A sees this as a matter of principle. She doesn't want Mr B to effectively continue running the exact same business that she owns 24% of, under a different limited company that she owns nothing of.

Surely, in very basic terms, he's stealing her 24% shareholding? I know that legally he isn't, but in principle he is.

You will have a far better knowledge than anyone here, but as on the face of it the company made £12,000 post tax profits, as reflected in the last accounts (£50-£38), then unless there were dividends (and if there were and all shares are equal Mrs A ought to have received some and as you seem to indicate b/fwd  losses there really cannot have been dividends) it appears that the goodwill value /company value may be limited (of course we have no idea re Mr B's salary/ other exceptional costs/cashflow generation etc)

Remember that when valuing a company if the assets on the balance sheet are needed to generate the profit  then any valuation that  say added the goodwill value to the tangible assets/working capital needed to make the profits would be double counting;  either dividend yield, earnings multiple or net asset value, a hybrid valuation is only really appropriate if some of the assets are surplus to the requirements of the business.

So I think  unless dividends / excessive director remuneration etc that on the face of things anyone would be hard pressed to value the whole at  > £100,000, possibly a fair bit less, and certainly a 24% stake if non dividend paying is worth a lot less.

Without further data/clarification it is hard to say what value possibly ascribes to the 24% but on the face of it is not a exceptionally large figure

 

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