We have a new client who has got a portfolio of companies and now moved to investment properties. One of his companies has got freehold of number of flats that were to be sold. Due to lack of interest they decided to lease the unsold flats out. Aparently the freeholder can not also be the leaseholder hence they came up with a new structure, a group. They set up a new company that is to become a leaseholder, a subsidiary of the freeholder company. Parent will retain the freehold and grant leases on the 3 units to Subsidiary, which lenders fund against. Currently the new company has got the same two shareholders as the old company. We need to show a transfer of shares to the old company, creating a group.
The broker has asked to action this with a note: "If confirmed they have been transferred at full market value via equity and no money evidenced then my lenders contact will pass this onto their solicitor which will end the requirement re confirming the balance of funds is held as per the previous email."
I am not entirely sure about this condition. Apart from the transfer of the shares from existing shareholders to the old company on Companies House, is there anything else that need to happen here? Does this require any additional legal paperwork and/or involvement of solicitors?
What should be shown as a consideration of the shares, which are of £1 nominal value in the new company, that is to become a subsidiary?
What transaction should be shown in the accounts of the old company? I understand the new subsidiary will be shown there as an investment property but does it require any journal entries at the transfer of the shares?
Any thoughts on this would be much appreciated.
Many thanks
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One of his companies has got freehold of number of flats that were to be sold. Due to lack of interest they decided to lease the unsold flats out. Aparently the freeholder can not also be the leaseholder hence they came up with a new structure, a group.
That doesn't make sense. If I own the freehold and let the property, I am not the leaseholder.
Justin often says that he can't be bothered to comment on the rubbish I write in this forum. Reading your question, I begin to understand how he feels.
The situation just cannot be as you describe it. It's not just the bit AA quoted that makes no sense - none if it does.
I'm also a bit concerned about your client take on process. This sounds like a client that should not have cleared all the hurdles.
It actually does make sense.
Company A owns the freehold over the building, and was going to grant long leases over the flats to purchasers. It now wishes to grant short tenancies, but needs to raise buy to let finance over them which requires it to first grant long leases to a subsidiary (company B) - because company A can't grant long leases to itself - and company B will then grant the short tenancies on. It's a common situation. Ought to be a piece of p155 to anybody with an ounce of commercial common sense.
As I understand it, the question is what happens with the shares in company B in company A's books. If they're 100 £1 shares; dr Investments £100, cr Cash/Creditors £100.
Ought to be a piece of p155 to anybody with an ounce of commercial common sense.
I've never claimed sense of any kind - common, commercial or weighable, let alone all three. My honest stupidity permits me to ask honest, stupid questions. Like... why not borrow against the freehold? (We're just talking about using the property as security, right?)
Hm. Lots of little bits of security rather than one big bit. Always looking after their own interests - stuff what's good for the borrower?
Whilst I do not understand your strange forms of land tenure I think I can see the lender's point. If they hold a security over one title and have to take possession and then sell it as heritable creditor they either would need to sell the entire freehold as is (fewer buyers, I expect) or sort it out at that point splitting it down into bite size bits.
We in the main up here seem to have easier titles to split, we just do a straightforward disposition of the bit being sold out of the larger title and job is done (though actually receiving the Land Cert under the newish regime ,re the bit sold ,takes years)
If you converted your legal system to better understanding the idea of joint ownership of say the roof, walls, solum or the airspace of an entire building, and that ownership/title to these aspects resided within the title for an individual flat in said block ,with no need to split leasehold/freehold ,you might have a modern conveyancing system. :-)
( One of the areas of law my late father (who studied law in both England and Scotland) was adamant was superior up here)
If the shares are simply being transferred to the freeholder company, and the leases have not yet been granted, and the directors currently own the shares in the old and new company (is all that correct?), then all that needs to happen is an entry in the freeholder company's books;
DR Investments, (say) £100 nominal value of shares
CR Directors' Loan Accounts £100 consideration.
No entries are needed in the subsidiary's books at all.
As others have said, it's a simple matter of transferring the shares from the current shareholders to the old company, and it's a simple transaction in the books of old company.
I know you said that this is a new company, but has it done any trading at all and does it have anything on the balance sheet apart from the £1?