Associated company and greater right to assets on a wind up

[simplytax]

Co. B has the following participators:
Mr X 1 share out of 2 issued ie 50%

Mr Y 1 share out of 2 issued

Co. A has lent £100k to Co. B and also £100k to each of Mr X and Mr Y who in turn lent the money to Co B.

The loans to Co B are interest free and can be converted to equity or repaid after two years.

Co A is controlled solely by Mr Z who is not associated with Mr X or Mr Y.

Is Co B an Associated Company of Co. A ?

Does the option to convert loans to equity mean that you have to assume this would be done by all participators such that share capital is held 100001, 100001 and 100000 ie approx 1/3rd each ? and Co B not associated with Co A ?

If the option to convert the loans to equity is after two years then for the current position, is it share capital control Mr X and Mr Y; For entitlement to greater part of assets on a wind up does "greater" mean more than 50% ,or the greater amount ?

ie if loans from Mr X and Mr Y only repaid in part by Co B to leave £65k each outstanding due by Co B and there is negative net assets in balance sheet then would this mean that Co A would have the greater amount of assets on a wind up based on a pro-rata amount of the £100k loan compared to Mr X and Mr Y with smaller loans, but Co A would not have more than 50% of assets on wind up. Is Co. B an associate of Company A in such circumstances ?

The loans made from Co A to the shareholders of Co B who then lent to Co B - do these come into it or is this a separate arrangement with Mr X and Mr Y as Co A would have to separately pursue them for repayment of these loans as individuals.

I was not anticipating Co B being an associate of Co A unless the greater part of assets on a wind up test could apply. At what point however would this be verified - based on year end net asset position in balance sheet of Co B ? what if not coterminous with Co A year end and information not available ?

[Incredulum]

Meaning of participator s417 any person having a share or interest in the capital or income of the company, and... includes
(a) any person who possesses or is entitled to acquire share capital
(b) any loan creditor

Meaning of control/associated company s416 ...if he possesses such rights as would, in the event of the winding-up of the company... entitle him to receive the greater part of the assets of the company which would then be available for distribution among the participators.

416 (4) For the purposes of the above a person shall be treated as entitled to acquire anything which he is entitled to acquire at a future date.


Presuming the loans to X and Y are secured with a charge over the shares of B, then clearly on a winding up A would get 300,000/300,002 of the company - and certainly for s414 Z would therefore get this proportion. If not so secured, then it's not such a clear question.

Greater means over 50%.