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TOGC question

TOGC on a company with negative balance sheet

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Any help is appreciated on this one;

A client of mine runs a VAT reg. pub, currently 6months into trading but already running up a large loss and negative balance sheet of around -£35k, struggling to pay the bills. Assets of £10k and Liabilities of £45k, of which £20k is loan from D2.

The company (old co) has got 1 director/shareholder (D1) and 1 additional director (D2). D1 has dissapeared, and they aren't coming back, D2 wants to set up a new company (new co) and start again from scratch with no association to D1 whatsoever - however, they are willing to pay all O/S balances to creditors, HMRC and waive his loan of £20k, would re-coup via dividends in new co - aim is for it to be profitable.

My questions are; would TOGC apply? even though the company is insolvent.

Could old co sell the £10k assets + stocks to new co without any implications? This would clear most of the trade creditors and taxes. Then submit voluntary liquidation to Co House for old co?

Or; could creditors be assigned to new co and the other side of the double entry be goodwill? No CT releif?

I assume new co would have to register for VAT straight away given that trade is essentially going to carry on with no interruptions? Expected turnover for year is £300k.

I'm probably way out of my depth here with this, but any help and/or advice is appreciated, for my own knowledge if anything else.


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By Les Howard
26th Jan 2020 20:48

TOGC case law asks whether there is a continuing business, not whether it is profitable. That said the usual tests apply; assets to be used in the same time of business; new owner carries on business; no break in trade, or only brief break, etc.
Seek paid advice so you have something in writing.

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