Company Restructure/Demerger

[Milbo]

I have an individual who is the sole director/shareholder in a holding company which in turn owns 100% of the share capital in the trading company.

The holding company has a substantial liability to a former shareholder and repays capital & interest with monies provided by the trading company. Both companies are therefore treated as associated.

It has been suggested that the trading company moves up into the holding company and the bottom company is dissolved however the administration involved is substantial and the client has suggested that we seek an alternative.

The alternative is to move the loan down to the trading company which can be done in about 12 months by when the Balance Sheet will be positive even including the loan. The holding company will become non-trading and fall out of the equation for associated company purposes with a little careful management.

The director would like to get rid of the holding company altogether so that he becomes the direct shareholder of the trading company. Is this possible without a complicated arrangement involving the formation of a newco?

Any suggestions would be appreciated.

[section 44]

This doesn't make any sense. Are there two companies (as your post initially describes) or three companies?

the trading company moves up into the holding company and the bottom company is dissolved

[Milbo]

My apologies for any confusion.

There are two companies. The reference to the dissolution of the bottom company was meant to relate to the former trading company after it has moved up into the holding company.

[section 44]

But the trading company is already a wholly-owned subsidiary of the holding company so how can it move up into the holding company. What do you mean?

[Milbo]

Maybe I should have said move the trade and assets into the top company leaving the wholly owned subsidiary as a shell only.

However that is irrelevant to the question as the client doesn't want to do that due to the administrative burden.

[section 44]

How would the loan move down to the trading company? Would there be back-to-back loans or a release of teh existing loan and a new loan between the trading company and the lender?

[Milbo]

There are no 'issues' between the lender (brother) and the company so it can be done either way.

[section 44]

The holding company will become non-trading and fall out of the equation for associated company purposes with a little careful management.

How?

[AvocadoK]

Both companies are therefore treated as associated.

Is this the perceived problem that you are trying to solve? If so, have another look at s26 CTA 2010. The holding company might well be dormant if it does not carry on a business of making investments in the AP. If that is the case, all the following subsections (eg treating a company as passive if dividends merely pass through it) are irrelevant - it is dormant because it is not carrying on a business.

As s26 is relatively new, you could obtain a non statutory business clearance from HMRC.

AK

[Milbo]

Thanks AK, I think if we move the loan down then we can treat the holding company as dormant as the repayments will be via the trading company.

The client however wants to remove the holding company altogether.