Associated Companies

[asmyth]

I am fairly sure these two companies are associated but before I concede to our beloved HMRC Inspector I would appreciate if someone can confirm or better still if someone will tell me they are not!

Company A is owned 40% by Mr X and 60% by Mr Y.

Company B is owned 100% by Mr X.

Company A's balance sheet at 31/3/2009 comprises:

Fixed assets £226k + current assets £290k - current liabilities £330k - loan to company B £98k = net assets of £88k. The net current liabilities of the company are £138k i.e. it is technically insolvent.

The intercompany loan from Company B to Company A was granted to fund the purchase of the fixed assets and there is little or no trade between the companies.

There is no association on the basis of the shareholdings but on a winding up under S416(2)(c) - Mr X would receive the £98k loan (into company B) and 40% of the net assets meaning he would receive the 'greater part' of the assets on a winding up.

The only thing I can think of (really clutching at straws) is that on a real winding up, the fixed assets would realise substantially less than their book value so it is very possible the participators would receive nothing. Does S416(2)(c) refer to a winding up as if the net assets per the balance sheet were realised at their book value or does it refer to a real life winding up which could be very different to the balance sheet values?

Is there any way out of this or should I cave in?

Thanks