Removal of parent company

In a parent and subsidiary group our client wants to simplify by removing the parent company

Didn't find your answer?

Our client used a new company to purchase a trading entity 10 years ago. The hive-up of the trade never happened due to lease, IP and trade VAT and TUPE implications which the client wanted to deal with at a later time.

Now, the client is comfortable that the subsidiary does not have any unknown liabilities and wants to simplify the group by removing the dormant parent company. 

The only assets / liabilities in the parent are the investment value, and an intercompany balance (and small distributable reserves).

In order to strip out the parent company

1) Is clearance required for the transfer of the shares?

2) Are there other tax implications to be aware of (intercompany write offs needing formal agreement?)

3) In terms of accounting entries in subsid, the intercompany balance will disappear and presumably be replaced by Goodwill?

4) Are the distributable reserves of parent transferred to the distributable reserves of subsid, or used to reduce the current investment value (which becomes goodwill)?

Many thanks for guidance.

J

Replies (4)

Please login or register to join the discussion.

By johngroganjga
16th Aug 2017 20:06

Before he goes down this route I think your client needs to be advised of the pros and cons of doing it as opposed to the obvious alternative of hiving up the trade and assets and getting rid of the subsidiary. Has he been so advised and, if so, what is his rationale for the choice he has made?

Thanks (0)
avatar
By jpg80
16th Aug 2017 21:23

Thanks John.
The rationale is the ease (or relative minimal disruption). All trading contracts, leases, employees, credit rating, VAT numbers, stationery etc are all in the subsid and to transfer these will be at considerable expense.
The potential for incorrect conclusions to be drawn from a transfer now, and credit lines not being available, albeit temporarily, until a history has been formed make the striking out of a dormant parent, which does nothing much more attractive.
Thanks
J

Thanks (0)
avatar
By Justin Bryant
17th Aug 2017 11:35

How are you proposing to get rid of the parent? It is not a simple process and specialist tax advice is needed to avoid it being taxed as a distribution etc. In case not obvious, the subsidiary cannot acquire any of its parent's shares per s136 CA 2006.

Thanks (0)
avatar
By jpg80
17th Aug 2017 13:03

Thanks Justin. Having performed more research, then the answer sadly appears to be "with difficulty".
I had rather much hoped that I was ignorant of some HMRC clearance which provided the opposite clearance of share for share exchanges when inserting a holding / parent company. It seems not.
Thankfully the companies are not worth a lot (hence one of the reasons to simplify), and any tax on a distribution may be acceptable.
Thanks
J

Thanks (0)