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Client wants to sell his company, which has a cash balance of £70000 . The prospective purchseer is short of £60000 and has proposed that the company lends him £60000 at commercial rates, which he will immediately pay my client (back to back) and then own the company. The company will then be insolvent for a short period of time - say 4 months. As there are negative reserves our client can't dividend the money. Any brilliant and legal ideas on the forum as to how the money can be got out without triggering a large tax bill. The client is happy to pay CGT on the purchase price. I can't see how it can be done without at least a S455 bill

The Articles would have to be amended to allow commercial lending 

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By The Dullard
15th Apr 2021 16:04

Usual approach is for the purchaser to set up a holding company to acquire the target. The target is sold to the holding company with the proceeds left outstanding as a loan, with a legal charge over the shares.

Then target pays a dividend up to the holding company (which in this case will have to be a loan, but now you have the purchaser making a preference over the existing creditors, rather than your client) and the holding company then pays the sale price, and the vendor releases the charge.

The purchaser's problems (creditor preference, getting rid of the holding company later, and trading whilst insolvent, but not s 455) are then the purchaser's problems.

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Replying to The Dullard:
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By bernard michael
17th Apr 2021 09:13

The Dullard wrote:

Usual approach is for the purchaser to set up a holding company to acquire the target. The target is sold to the holding company with the proceeds left outstanding as a loan, with a legal charge over the shares.

Then target pays a dividend up to the holding company (which in this case will have to be a loan, but now you have the purchaser making a preference over the existing creditors, rather than your client) and the holding company then pays the sale price, and the vendor releases the charge.

The purchaser's problems (creditor preference, getting rid of the holding company later, and trading whilst insolvent, but not s 455) are then the purchaser's problems.

Thanks very helpful

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