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Transfer of a Company Debtor

Non Covid-19 question !

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I've a client who loves to throw curve balls at me.

He has several companies, most of which he is always transferring monies around in.

Anyhow one of his companies hasn't traded for a couple of years but has two large debtors on its books which are both companies wholly owned by himself.  This is basically monies that he has transferred from this company to his other companies.  They stand at over £200k.

He now wants a clean Balance Sheet on this company, so wants to transfer the debtors to another company that he owns.  I just can't see how this can be done.  If I reduce the debtors then the only other option is to reduce the shareholder funds ie profit and loss account.  And if the debtors are now included in the new company presumably the other side of the entry would be to increase the shareholder funds ie increase P&L.  Is this creating a taxable event?  My head is spinning with this scenario (of top of the normal Covid19 questions) and of course he wants it all done today.  

Any advise/help/thoughts please.  Thanks in advance.

Replies (7)

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By johngroganjga
06th Apr 2020 13:04

I think you need to ask him why he wants to do this before you can offer a solution.

The easy way to move the debtors is for them to be repaid - in the full sense of the word - by the other company he wants to be the new creditor. But does it have enough cash, and does he want the present creditor company to be sitting on a pot of cash?

Another way is just to reschedule the debt by journal entries, but the the new creditor would then become the old creditor’s debtor, in place of the debtors your client wants to move. Does that meet your client’s objectives?

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Replying to johngroganjga:
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By SJRUK
06th Apr 2020 13:28

johngroganjga wrote:

I think you need to ask him why he wants to do this before you can offer a solution.

The easy way to move the debtors is for them to be repaid - in the full sense of the word - by the other company he wants to be the new creditor. But does it have enough cash, and does he want the present creditor company to be sitting on a pot of cash?

Another way is just to reschedule the debt by journal entries, but the the new creditor would then become the old creditor’s debtor, in place of the debtors your client wants to move. Does that meet your client’s objectives?

You've lost me on the last paragraph I'm afraid..... The creditors remain the same, its the debtors that are changing. But yes it would have to be a journal entry solution as there is no pot of cash.

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Replying to SJRUK:
By johngroganjga
06th Apr 2020 14:36

I am not sure why you are lost by anything I said. Although if you think the creditors of the two debtors remain the same after as before the change I think you have already lost yourself. Changing the identity of the creditor company is the whole point of your question.

If journal entries are the way to go, does your client mind the net assets of the existing creditor company remaining unchanged, with just the identity of its debtors changing? If not, you have your answer.

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By Duggimon
06th Apr 2020 13:04

Instead of focusing on the debtor balances, you should instead consider how to get the retained profits out of the company.

As he's controlling all the companies he can do what he likes with the debtors but the key in getting the balance sheet to nil is how to get those retained profits out of the company. The two traditional methods are by paying out a dividend or by making a huge loss, either of which are options open to him.

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Replying to Duggimon:
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By SJRUK
06th Apr 2020 13:41

Duggimon wrote:

The two traditional methods are by paying out a dividend or by making a huge loss, either of which are options open to him.

I think this may be the way to go. Create a huge non-trading loss (there are sufficient profits b/f to cover this).

In the companies lending the money - also write off the loans in them, creating a non-trading profit. Is this the sticky point? Presumably non-taxable...……...but is it?
Then the loans inter-co are written off all around and not shown anywhere.

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Replying to SJRUK:
By Duggimon
06th Apr 2020 14:08

Provided the companies meet the definition of connected companies, CTA 2009 s.358 should apply and no taxable gain/loss arises on the loan write off.

Probably best having a wee read through to check it's all ok though.

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By Philipbwood
08th Apr 2020 10:38

An alternative may be to consider Members Voluntary Liquidation, and distribute the debtors to him in specie? (But no info on what the Shareholder's CG position is, income level etc, or even why he wants a "clean" balance sheet.)

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