Conflicting advice from 2 Accountants
Discussion
Was there ever a likelihood that the original £150,000 loan would be repaid?
Did the original loan have any sort of loan agreement - stating the terms and conditions of the loan - in place?
Or was it only ever a very casual arrangement along the lines of "here's some money, pay it back whenever you can"?
Did the original loan have any sort of loan agreement - stating the terms and conditions of the loan - in place?
Or was it only ever a very casual arrangement along the lines of "here's some money, pay it back whenever you can"?
Eric Mc said:
Was there ever a likelihood that the original £150,000 loan would be repaid?
Did the original loan have any sort of loan agreement - stating the terms and conditions of the loan - in place?
Or was it only ever a very casual arrangement along the lines of "here's some money, pay it back whenever you can"?
You have to remember the context - both companies equally owned by a long term married couple (20 plus years by the time the loan was made)Did the original loan have any sort of loan agreement - stating the terms and conditions of the loan - in place?
Or was it only ever a very casual arrangement along the lines of "here's some money, pay it back whenever you can"?
As far as I know there is no loan agreement and the plan would have been to repay when the properties were sold. (This is a presumption)
The companies will have been structured this way to spread the burden across the couple, and this has been in place for quite some time.
Panamax said:
And let's not forget a director needs to act in the best interests of the company, not of himself/herself. In what way does it serve the interests of the company to wave goodbye to £150k, apparently for no reason?
The shareholders are the same in both companies.Nobody is being disadvantaged.
If the company ceased trading today there would be no unsatisfied creditors.
Are they both still directors/shareholders of both companies?
Do they have equal shareholdings?
Did both parties "work" in the companies - or was one just a named director/shareholder so that income (salaries/dividends etc) could be split for tax efficiency purposes?
There are all sorts of areas where this can go very badly wrong for either or both parties.
Do they have equal shareholdings?
Did both parties "work" in the companies - or was one just a named director/shareholder so that income (salaries/dividends etc) could be split for tax efficiency purposes?
There are all sorts of areas where this can go very badly wrong for either or both parties.
TownIdiot said:
If the company ceased trading today there would be no unsatisfied creditors.
Therefore the company that has literally thrown away £150,000 is "satisfied" with that outcome?What happens to the property that is owned by the company that received the loan?
If and when that property is sold I presume whoever is left owning that company gets their hands on the proceeds.
Therefore, it looks to me that the company writing off the loan it made will also be throwing away access to any monies generated by the sale of the property - which I assume is worth substantially more than £150,000.
The whole thing is actually much, much more complicated and potentially dangerous than the OP seems to be intimating.
Eric Mc said:
Are they both still directors/shareholders of both companies?
Do they have equal shareholdings?
Did both parties "work" in the companies - or was one just a named director/shareholder so that income (salaries/dividends etc) could be split for tax efficiency purposes?
There are all sorts of areas where this can go very badly wrong for either or both parties.
Yes both still directors and equal shareholders.Do they have equal shareholdings?
Did both parties "work" in the companies - or was one just a named director/shareholder so that income (salaries/dividends etc) could be split for tax efficiency purposes?
There are all sorts of areas where this can go very badly wrong for either or both parties.
One of them did basic admin such as invoicing and banking (this was genuine) but doesn't do so anymore as she now has a full time job to pay the bills.
The only other alternative is really to liquidate everything and divide the cash. Which is even more sub-optomal. (Main residence already sold)
It's an interesting situation really. The question is "can this loan be written off legally" to which the answer appears to be "yes".
The rest is really a consequence of divorce, which is rarely ever a good outcome for all parties.
Eric Mc said:
Therefore the company that has literally thrown away £150,000 is "satisfied" with that outcome?
What happens to the property that is owned by the company that received the loan?
If and when that property is sold I presume whoever is left owning that company gets their hands on the proceeds.
Therefore, it looks to me that the company writing off the loan it made will also be throwing away access to any monies generated by the sale of the property - which I assume is worth substantially more than £150,000.
The whole thing is actually much, much more complicated and potentially dangerous than the OP seems to be intimating.
All this is true.What happens to the property that is owned by the company that received the loan?
If and when that property is sold I presume whoever is left owning that company gets their hands on the proceeds.
Therefore, it looks to me that the company writing off the loan it made will also be throwing away access to any monies generated by the sale of the property - which I assume is worth substantially more than £150,000.
The whole thing is actually much, much more complicated and potentially dangerous than the OP seems to be intimating.
Equal sacrifices are being made by each of the shareholders. It's as close to 50-50 as is possible and with a clean break
I don't really have any more information - I was discussing the situation this morning and as I was faffing around researching for a meeting I thought I'd ask. I can't really help them, I was just interested in the legalities.
So in essence after swapping their 50% holdings for nil or equal value:
Company A's shareholder gets left with an insolvent company that they can't take any drawings from, unlikely there is enough profit to do so.
Company B's shareholder owns a company that doesn't have to repay a loan for a property that can be sold and the proceeds end up in the bank account of Company B.
Company B is getting a good deal, Company A's Director (with a Director hat on NOT a shareholder hat) is not acting in the best interests of the Company or shareholders by agreeing to that deal.
Company A's shareholder gets left with an insolvent company that they can't take any drawings from, unlikely there is enough profit to do so.
Company B's shareholder owns a company that doesn't have to repay a loan for a property that can be sold and the proceeds end up in the bank account of Company B.
Company B is getting a good deal, Company A's Director (with a Director hat on NOT a shareholder hat) is not acting in the best interests of the Company or shareholders by agreeing to that deal.
Mr Overheads said:
So in essence after swapping their 50% holdings for nil or equal value:
Company A's shareholder gets left with an insolvent company that they can't take any drawings from, unlikely there is enough profit to do so.
Company B's shareholder owns a company that doesn't have to repay a loan for a property that can be sold and the proceeds end up in the bank account of Company B.
Company B is getting a good deal, Company A's Director (with a Director hat on NOT a shareholder hat) is not acting in the best interests of the Company or shareholders by agreeing to that deal.
They are both directors and shareholders of both companies.Company A's shareholder gets left with an insolvent company that they can't take any drawings from, unlikely there is enough profit to do so.
Company B's shareholder owns a company that doesn't have to repay a loan for a property that can be sold and the proceeds end up in the bank account of Company B.
Company B is getting a good deal, Company A's Director (with a Director hat on NOT a shareholder hat) is not acting in the best interests of the Company or shareholders by agreeing to that deal.
The person who will be left with company A is not disadvantaged as they are getting other assets and a clear run going forward.
It's a very equitable split for both parties
Company A appears to lose out but the shareholders do not lose out and agree to all the terms, which will be subject to a binding court order.
Edited to add
Company A won't be insolvent. It will just be less solvent
Edited by TownIdiot on Thursday 13th June 15:16
TownIdiot said:
They are finalising the agreement and one party's solicitor has advised further accountant input and it's this accountant that has cast doubt on the original advice. They have a clause in the agreement which says neither party will come after the other for any future tax liability.
I am not really party to their detailed financial history, just been the recipient of some frustrated ranting, so thought I'd ask here as I sit at my desk staring out of the window as I am the sort of sad case that finds this type of thing interesting.
As frustrating as your friend finds it, the financial settlement will be reviewed by the family court so you can see why the solicitor wants to ensure there is no blowback.I am not really party to their detailed financial history, just been the recipient of some frustrated ranting, so thought I'd ask here as I sit at my desk staring out of the window as I am the sort of sad case that finds this type of thing interesting.
C4ME said:
As frustrating as your friend finds it, the financial settlement will be reviewed by the family court so you can see why the solicitor wants to ensure there is no blowback.
It's not the solicitor They have agreed it and suggested getting an accountant to go through it.
For reasons unknown they went to a different accountant and he said
You can't do that
As opposed to
You can do this but it could cost you X
Both a happy to cover any subsequent tax costs themselves.
Eric Mc said:
I also wondered if there was any sort of financial charge on the property and if there were any personal guarantees signed by one or both directors.
Was the property bought by the company outright for cash or is there a third party lender involved?
That side has been sorted. Or it will be if they can sort this out. (there is more than one property in the ltd co and only one is mortgaged to a relatively low LTV)Was the property bought by the company outright for cash or is there a third party lender involved?
In essence the the financial separation order is ready to go to the court if they can solve this issue.
Panamax said:
You need to understand that limited companies are not simply vehicles for tax avoidance.
Ask yourself, why is this mechanism being proposed/used?
So that they could put some cash into a different limited company to buy a property, whilst ensuring A retains its status as a trading company rather than an investment company.Ask yourself, why is this mechanism being proposed/used?
That's my supposition as I was involved in setting it up.
And whilst I agree they aren't simply vehicles for tax avoidance, they are vehicles that provide different tax treatments to operating as a sole trader.
I can't see anything wrong with A lending B the money.
Tax will be paid should B generate any profits, just as it would have been had company A.
I'd be going with the company accountant's advice and cracking on with getting divorced. Particularly if I was the bloke (A) as he's got a good deal.
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