Bank account for company closing down
Discussion
Sorry for the long post. I’m helping a good friend who has a company that is in the process of voluntary closing down. The company had originally been set up to develop properties back in 2018. Anticipating that it would continue a sequence of developments as a source of funds in retirement, it had a structure as follows
Company A – Holding Company
Company B – 1st site development
It was anticipated that future developments would be handled under new subsidiary companies C,D,E etc.
Company A holds 100% of the shares in company B and my friend owns 100% of Company A.
Company A has never had a bank account (this is the problem), its only expenses were the annual accounts and companies house registrations which were paid from company B.
Before Covid, company B built 3 house which were sold back in 2020 and another plot of land was purchased (also by Company B). The planning permission for this plot took a long time through Covid and when it was eventually granted another developer approached him and bought the site.
Due to a change in priorities, my friend does not want to continue in property development (he has another unrelated business) and has been advised by his accountants to close down the company (there are no creditors or debtors) and take out the remaining (quite substantial) funds in Company B. However, he has been informed that these funds need to be paid in to a bank account in the name of the parent Company A, which makes sense BUT how does he get a business bank account for Company A now, when it will only have 2 transactions.
1) deposit of funds from Company B
2) paying out to my friend and then closing down?
Not surprisingly, given how difficult it seems to open up a business account and the quite large sums of money involved, he is struggling to open an account for company A. Company A does not meet the criteria for an account with his current bank and I assume it would set off money laundering alarms at most institutions.
Any sensible suggestions are welcome!
Company A – Holding Company
Company B – 1st site development
It was anticipated that future developments would be handled under new subsidiary companies C,D,E etc.
Company A holds 100% of the shares in company B and my friend owns 100% of Company A.
Company A has never had a bank account (this is the problem), its only expenses were the annual accounts and companies house registrations which were paid from company B.
Before Covid, company B built 3 house which were sold back in 2020 and another plot of land was purchased (also by Company B). The planning permission for this plot took a long time through Covid and when it was eventually granted another developer approached him and bought the site.
Due to a change in priorities, my friend does not want to continue in property development (he has another unrelated business) and has been advised by his accountants to close down the company (there are no creditors or debtors) and take out the remaining (quite substantial) funds in Company B. However, he has been informed that these funds need to be paid in to a bank account in the name of the parent Company A, which makes sense BUT how does he get a business bank account for Company A now, when it will only have 2 transactions.
1) deposit of funds from Company B
2) paying out to my friend and then closing down?
Not surprisingly, given how difficult it seems to open up a business account and the quite large sums of money involved, he is struggling to open an account for company A. Company A does not meet the criteria for an account with his current bank and I assume it would set off money laundering alarms at most institutions.
Any sensible suggestions are welcome!
If both companies are placed into members’ voluntary liquidation, the Insolvency Practitioner will open client bank accounts for both companies.
Company B will distribute funds (after costs) up to Company A.
Company A will distribute funds after costs to the OPs friend.
B to A has no tax consequences.
A to friend will be a capital (rather than income) distribution. Friend can ask his accountant about Business Asset Disposal Relief (previously Entrepreneurial Relief).
Before doing any of the above, friend should check that the Targeted Anti Avoidance Rules will not cause issues with his other business activities.
Company B will distribute funds (after costs) up to Company A.
Company A will distribute funds after costs to the OPs friend.
B to A has no tax consequences.
A to friend will be a capital (rather than income) distribution. Friend can ask his accountant about Business Asset Disposal Relief (previously Entrepreneurial Relief).
Before doing any of the above, friend should check that the Targeted Anti Avoidance Rules will not cause issues with his other business activities.
Thanks for the responses and correct terminology to search for.
As i understand it, my friend believed his accountants were handling the process themselves, they had certainly asked my friend to open the bank account for company A.
James P - If there has to be an Insolvency Practitioner involved, and they can open the relevant accounts then my friend can stop worrying and just let everything be handled in the correct manner. I know his accountants had discussed the Business Asset Disposal Relief with him and having just googled the Targeted Anti Avoidance Rules, I don't think that will apply to him (as long as he doesn't get it into his head to start property development again!).
Classicaholic - The worry with something like a Monzo account would be having to possibly lie about the intended business purpose of the account and I would have thought a large chance of triggering fraud investigations if a large sum of money just appeared and was then withdrawn.
Thank you for your help.
As i understand it, my friend believed his accountants were handling the process themselves, they had certainly asked my friend to open the bank account for company A.
James P - If there has to be an Insolvency Practitioner involved, and they can open the relevant accounts then my friend can stop worrying and just let everything be handled in the correct manner. I know his accountants had discussed the Business Asset Disposal Relief with him and having just googled the Targeted Anti Avoidance Rules, I don't think that will apply to him (as long as he doesn't get it into his head to start property development again!).
Classicaholic - The worry with something like a Monzo account would be having to possibly lie about the intended business purpose of the account and I would have thought a large chance of triggering fraud investigations if a large sum of money just appeared and was then withdrawn.
Thank you for your help.
You are overthinking this.
They is no reason the company without a bank can’t open one. If the money paid in comes from another uk bank nobody is going to bat an eyelid.
Banks have always been funny about business accounts. When I set up in 2013 Barclays, who I had a personal account with, said I’d have to wait 6 weeks for an appointment to discuss and then they would think about it. I walked two doors down to Lloyds and had one opened before the weekend.
As long as you have a companies house registration and an address you’ll get a business account.
They is no reason the company without a bank can’t open one. If the money paid in comes from another uk bank nobody is going to bat an eyelid.
Banks have always been funny about business accounts. When I set up in 2013 Barclays, who I had a personal account with, said I’d have to wait 6 weeks for an appointment to discuss and then they would think about it. I walked two doors down to Lloyds and had one opened before the weekend.
As long as you have a companies house registration and an address you’ll get a business account.
You should also pay the money as a dividend. It’s just a paper exercise but if you just say it’s a transfer of funds the money will always be technically owed to the transferring company. If you are closing that one it could cause an unnecessary complication.
Inter company dividends aren’t taxable.
I’d also think about another accountant as they should have advised against B paying A’s bills (or whichever way round it was).
Have annual accounts and corp tax calculation ever been submitted for the company without a bank account?
Inter company dividends aren’t taxable.
I’d also think about another accountant as they should have advised against B paying A’s bills (or whichever way round it was).
Have annual accounts and corp tax calculation ever been submitted for the company without a bank account?
Sunday Drive said:
Really, why?
Company A and B are separate entities. Although with group relief applied the net effect is the same regardless of which pays there is still a correct way of doing things.If for example B is VAT registered and A isn’t if B pays A’s bills and reclaims the VAT that is fraudulent.
trickywoo said:
Sunday Drive said:
Really, why?
Company A and B are separate entities. Although with group relief applied the net effect is the same regardless of which pays there is still a correct way of doing things.If for example B is VAT registered and A isn’t if B pays A’s bills and reclaims the VAT that is fraudulent.
Paying an invoice on behalf of another company is entirely legal and usual within groups.
OP mentioned B paying invoices on behalf of A and this would be okay.
Let us know how you get on OP!
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