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Alex J.
Alex J., Solicitor
Category: UK Bankruptcy Law
Satisfied Customers: 2493
Experience:  2 Years Insolvency Litigation
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a foreign corporation owns 100% of a u.k. corp. the u.k. corp

Customer Question

a foreign corporation owns 100% of a u.k. corp. the u.k. corp files bankruptcy, 90% of its debts are to another foreign corp that is also 100% owned by the foreign corp. how is the debt to the related corp. handled?
Submitted: 1 year ago.
Category: UK Bankruptcy Law
Expert:  Alex J. replied 1 year ago.
Hi

Thank you.

Just to confirm 90% of the debts are owed to a seperate company in a foreign jurisdiction?

Does the English company have assets? Has a liquidator been appointed?

Kind regards

AJ
Customer: replied 1 year ago.

the english company has £372k in assets and £671j in liabilities of which £623k is owed to an australian company and a usa company both also 100% owned by the foreign company. the english company is essentially insolvent. a bankruptcy averts the cancellation of debt income, but is their income to the holding(parent) company, and can the usa & aus companies write-off the receivables on their books?

Customer: replied 1 year ago.

not in liquidation. still operating

Expert:  Alex J. replied 1 year ago.
Hi

Thank you.

Are you suggesting that the Aus and USA companies write off the debts so there is more on the "pot" for the parent to be repaid? If so there is no issue with this under English law, I can make no comment under Aus or US law.

You can assign the insolvent company's assets to its parent however you will have to come to an agree with the unconnected 10% creditor first.

What assets does the company have?

Kind regards

AJ


Customer: replied 1 year ago.

what is the english law pertaining to related company ownership: ifthe u.k. corp declares bankruptcy, what happens to the debt owed the related companies? the 10% can be paid to the outside creditors. must they be reported as dividends or income by the u.k. corp under u.k. tax law?

Customer: replied 1 year ago.

please respond

Expert:  Alex J. replied 1 year ago.
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Customer: replied 1 year ago.

are you saying there is no dividend to the other related corporations for the difference between the bankruptcy value received, and the amount of the receivable?


Our tax accountant has stated that the stockholders of u.k. corp. owe the usa related corp the receivable, and would have to declare a dividend in the u.s. corp, thus causing income tax liability to themselves, and using the dividend to pay the receivables owed by the u.k. corp.


If all 3 companies were u.k. companies, what would be the tax ramifications. debtor company files(can they?) bankruptcy, can the receivable company write off the debt against income, or must the parent company(owning both corps.) transfer the debt to their books, and then declare a dividend in the receivable company, in order to liquidate the debt?

Customer: replied 1 year ago.

kindly respond to my question assuming all 3 companies are in u.k., are there any dividends or cancellation of debt income recognized by any of the 3 companies?


 


in other words, if the debtor company files chap 11, not recognizing cancellation of debt income, nor would the owner-parent, and the receivable-related company can write-off the uncollected receivables as bad debt expense on their u.k. tax return. thus no dividend income for any company, but the receivable company reduces income in the current yr by the bad debt write-off.

Customer: replied 1 year ago.

did not receive an answer to my questions.

Expert:  Alex J. replied 1 year ago.
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Customer: replied 1 year ago.

You did not address the related company question. Of course your generalized answer is true. I'm inquiring whether it's applicable to related company debt. Can a related company write-off the receivables to another related company, when both are fully-owned by a 3rd corporation. Please answer this specific question. In actuality the 3 are from different countries, u.k., aus, and usa, but since you only know u.k. law, I then changed them to u.k. countries. Do you understand my question now? Does common ownership have any effect or consequence on whether the debtor company, can file bankruptcy, and not have to recognize income on the payables it owes a related company, whereas both are fully owned by a 3rd company. What does u.k. law permit or mandate in this case?


much obliged,


Don

Expert:  Alex J. replied 1 year ago.
Hi

Thank you.

I am afraid your question does not make sense to me under English law. Companies are distinct legal entities it does not matter if the debtors own part of the company. If they choose to write the debt off other creditors can still put the creditor into liquidation.

As you have given me a poor service rating I am opting.

Kind regards

AJ
Customer: replied 1 year ago.

you haven't answered my specific question, just given generalities. I'm reversing my payment.


 

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