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Reduce share premium

Reduce share premium

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Hoping someone can help with be the below scenario:
Trading subsidiary has ceased to trade. Holding company is due to enter MVL this week to distribute assets.
Subsidiary accounts are currently as follows:
Debtor Intercompany with holdings ac £500k
Share capital £1
Share premium £499.99k
Effectively all money has been loaned to holdings and I want to clear loan account via dividend, obviously can’t do this out of share premium. How do I reduce share premium and what are the accounting adjustments once this is done?

BTW, the shareholder who was issued 1 share for £500k is not the holding company.

Replies (6)

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By johngroganjga
17th Mar 2016 09:20

You are over thinking.

You don't need to do anything.

The holding company has a share worth £500k and an equal and opposite liability.

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By michaelbeaver
17th Mar 2016 09:39

Forgive the debt.  Not taxable within the same group, and the negative P&L reserves will cancel out the share premium.

 

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By johngroganjga
17th Mar 2016 09:53

No point in doing that either. Just strike the subsidiary off and have done with it.

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By Jigs
17th Mar 2016 10:48

thanks for your comments, the holding company has investment in sub £1 and issued share capital of £1. shall I just write off loan in sub as it cant be a dividend?

Ironically the shares were issued to someone for £500k who subsequently sold the to holdings at par.

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By Portia Nina Levin
17th Mar 2016 11:01

I agree with Michael, the problem is in the holding company's accounts. You have a debt due from the subsidiary that cannot be distributed. If the debt is formally released that debt disappears legally which is important.

The remaining assets in the holding company (including the shares in the subsidiary) can then be distributed to the members, who can then just get the subsidiary struck off.

John's "do nothing" approach leaves you with a legal asset in the holding company that is not capable of distribution. The liquidator should take care of all of this though.

 

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By johngroganjga
17th Mar 2016 11:15

Back to front

Portia Nina Levin wrote:

John's "do nothing" approach leaves you with a legal asset in the holding company that is not capable of distribution. The liquidator should take care of all of this though.

No it doesn't

First of all, for the holding company, the inter company balance is a liability not an asset. The asset is the shareholding.

The liability disappears by being set against the distribution of the subsidiary's assets on its liquidation. 

Waiving a debt that is ultimately due to the debtor in another guise is, as I keep saying, a pointless waste of time.

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