I have a client (a UK based individual) who owns 100% of Companies A, B and C (all UK micro companies).
There are intercompany balances between the three companies relating to money moved between the companies (not invoices for work completed).
Company A will soon begin the liquidation process.
Could anyone please confirm how to deal with the intercompany balances on both sides assuming the balances are not repaid.
If there is an intercompany debtor balance in company A with company B I presume the liquidation process will deal with this accordingly and the asset will be distributed to the shareholders; or does this need to be written off in company A, if so to where? How is this dealt with in company B? In company B what would the debit side of the journal be posted to?
Also, if there is an intercompany creditor balance in company A with company C how is this dealt with regarding the journal in both companies? I do not need to know about the implications of a creditor balance in company A on liquidation, I am just considering the journals required in both companies for now.
Thanks in advance for any assistance.
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Once the liquidator is appointed he or she will take control and the days of putting journal entries through company A's books, and similar niceties, will be well and truly over.
You don't mention the financial position of company A - i.e. whether it is solvent or not. However on first principles, expect the liquidator to collect the sum due to A by B, and then pay the sum due to C by A.
You need to tell us more about this liquidation. Who is doing it? Is it voluntary, and being done by yourself? Are the companies in a position to pay each other's balances?
If the debt is overdue then technically B is insolvent...
Usually The Liquidator would collect the debt in but this can cause delays and extra costs. the alternative might be to assign the debt to the shareholders and transfer it as a distribution in specie.
The Liquidator can advise.
If the debt is overdue then technically B is insolvent...
Usually The Liquidator would collect the debt in but this can cause delays and extra costs. the alternative might be to assign the debt to the shareholders and transfer it as a distribution in specie.
The Liquidator can advise.
What is the owner trying to achieve?
If he wants to wind up A, and A is owed money by B that currently B cannot pay, just distribute said loan in A to the shareholder of A and then Company B owes former shareholder of A instead- this might be quite tax efficient re extraction of monies from B in future.
Slightly trickier if Company A owes Company C, what you do not say is what if any cash is in each balance sheet as maybe it can be sorted by moving cash/assets round the houses.
I think the first question is , what is Mr Shareholder trying to achieve by winding up Co A and why now?
But how is that possible if the figures are either unhown or variable, and the tranactions need to be understood. Substance over form
There are no journal entries required for B. It can either pay its debt to A, or it can’t.
C may have a bad debt if A descends into insolvency and can’t pay it. Are you actually asking what entry to make to recognise a bad debt?
The liquidation of A can’t be completed until the debt due to it by B is dealt with. So your scenario whereby B is left with an unpaid liability to a company that no longer exists is fantasy.
Regardless of how A’s debt to C arose, if A is insolvent and can’t pay it, what kind of debt would it be in C’s books, if not a bad one?
So no company is insolvent. But no real idea what A is worth? A does not intend to collect debt from B or pay debt to C. Who is dealing with the MVL?
Does A have anything that is going to be sold?
I am suggesting that as A is to be wound up it must have some assets, you say circa £700k, what are these assets, are they liquid?
These assets are in part at least , ex costs, going to come to Company A's shareholder on winding up
If a chunk of these assets are liquid can Mr Liquidator not agree to make an interim distribution to the shareholder of A upon winding up, Shareholder then lends some cash to Company B, company B then uses said cash to repay company A, liquidator then finishes distributing Company A balance of cash to shareholder.
Company A then killed and company B owes director sum he lent it, no journals, everything follows the movement of the money.
So in Company A
Dr interim liquidation payments £100
Cr Bank £100
In Shareholder personal account
Dr Bank £100
Cr Int dist received £100
Then
Dr loan to Co B £100
Cr bank £100
Then in Company B
Dr Bank £100
Cr loan from shareholder £100
Then
Dr Loan due to Co A £100
Cr Bank £100
Finally in Company A
Dr Bank £100
Cr loan due from Co B £100
Then
Dr Final distribution to shareholder £100
Cr Bank £100
If no liquid funds in A to start with can shareholder bridge borrowings to get hold of the sum, to be paid round the houses and come back to him, a few days at most if properly planned re timing.
No journals then needed, merely record bank transactions and follow the money.
Best to get a bounce back loan to make this all possible. What extra journals would be needed?
So, money just turns up in the bank of one company from another, and there are no invoices to document why this should happen?
Not surprised this is messy.