Write off a "bad debt" against a linked company

Can company "A" write off a genuine bad debt against it's linked company "B"

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Afternoon all

One here that is playing on my moral mind if nothing else. . . . 

Client "A" a construction based Ltd Company and agreed to do some work for company "B" a property development ltd company - common link here is that they share the same director. She is not the sole director of both companies and both companies have different directors and shareholders.

Said shared director has dropped a genuine clanger on the amount of works she thought required for the property company. Construction company has now billed the property company for the works completed and unfortunately the property company doesn't carry the required liquid funds (Cash) to settle the invoices. 

Where do we go from here? 

Is it a case that the construction company sucks it up and writes it off? is this even allowed as the companies are linked. 
Does the construction company apply for a charge on the property company's assets (3 buildings) in settlement of its fees? Debt then isnt written off but will sit as unpaid until such time they either have enough cash or a property is sold.

Any other suggestions?

TIA

Replies (10)

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By Tax Dragon
12th Feb 2020 16:35

Don't the parties involved need to work out what they want to do? Why are you asking us, not them?

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paddle steamer
By DJKL
12th Feb 2020 17:03

If I was Construct Co I would only take security over the property in Prop Co if I also got interest on that sum due; in absence maybe a conveyance of a property to Construct Co, in satisfaction of the debt, ought to be considered.

Propco should probably have pressure applied to sell a property, but if loan set up in interim do get a longstop inserted, learn from my mistakes; we have a £70,000 sum o/s with interest on it re a sale we made years ago where I cannot force payment (both I and our solicitor missed that in the rush of a final redraft (there was not originally supposed to be £70k o/s) no longstop for the £70k was included in the terms)

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Replying to DJKL:
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By Tax Dragon
12th Feb 2020 17:52

Will that 'arrangement' be caught by the loan charge? :-p

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Replying to Tax Dragon:
paddle steamer
By DJKL
12th Feb 2020 22:41

I have no idea but it is apparently a commercial trading debt gone wrong and irrespective of tax I would be getting as secured as possible.

Frankly I hate deals between partially connected beasties, there is this presumption of friendship where in reality you just know one will probably try to pray on the deemed goodwill of the other.

When we have to negotiate these sorts of things amongst the families (I work for beasties owned by two families who are sometimes on opposite sides of the table) we choose teams,try to set up Chinese Walls and then try to outscore the other side by destroying them in the negotiations- great friendly fun for all the families.

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RLI
By lionofludesch
13th Feb 2020 09:45

I'd like to know to what extent these companies are linked.

One common director ? Out of two ? Or a dozen ?

How many shares does this director have in each company ? A few ? Or a lot ?

Could make a world of difference to your claim but, having said that, provided the expense isn't being claimed twice, that is, as an expense by one company and a bad debt by the other, I'd be comfortable with it.

Subject to any further information which may be disclosed later in the thread.

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Replying to lionofludesch:
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By Tax Dragon
13th Feb 2020 10:56

Who said it's a bad debt? It sounds to me as if it should be recovered in full - or, at least, that it could be so recovered. Of course, what the parties choose to do is up to them. From an ACCA and Accounts point of view (as per the tags), don't the accounts need to show the actuality (which will, in due course, reflect the parties' decisions)?

But actuality first, accounts after. The OP sounds dangerously close to putting the cart before the horse. Or even not looking to see which way the horse went. (Metaphors shmetaphors!)

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By Montrose
15th Feb 2020 22:43

Are the various directors and shareholders "associates". If so then HMRC could throw the book at what appears to be a gratuitous gift by one company to another, owned by the Director and her associates.

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Replying to Montrose:
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By Tax Dragon
16th Feb 2020 08:40
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Replying to Tax Dragon:
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By Montrose
16th Feb 2020 23:14

Hi Tax Dragon.
No I hadn't seen this discussion, but it does not cover the same question.

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Replying to Montrose:
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By Tax Dragon
17th Feb 2020 05:57

That's because this OP was asked from BigCo's viewpoint and the other thread was from LilCo's. The question was bound to be different; the issues surely overlap.

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