Non-cash assets and closing down your limited company

Donald McNaught

Donald McNaught

Restructuring Partner

Many contractors we work with own various assets through their limited companies. This can include property, office equipment, debtors and other tangible assets. Companies can also own other intangible assets such as intellectual property, websites and so on. 

Most contractor clients we speak to think these positions need to be unwound prior to considering a Members’ Voluntary Liquidation (MVL) i.e. converting these assets to cash. This is not necessarily the case. 

A liquidator can distribute 'in specie'. This may also be called 'in kind'. Essentially this means that a shareholder receives the asset in question as opposed to cash. 

How can they be distributed?

Providing there are no restrictions in the company's articles most assets can be distributed very easily. For example, property is distributed in the conventional manner where title is transferred from the company to the individual shareholder(s).

Office equipment can be distributed by virtue of a resolution of shareholders and this would be documented as part of the liquidation process. Debtors are assigned to shareholders. In Scotland this needs to be communicated to the debtor for it to be effective.

The most common type of distribution in specie that we see is of director/shareholder loan accounts. It is typical for a director to have withdrawn cash prior to liquidation and quite often we would encourage that if there is an urgent need for cash. This has tax implications to the extent any loan may be deemed as beneficial if no interest is paid however these are normally only outstanding for a very short period of time and therefore has minimal effect.

On liquidation this loan is extinguished and converted to a capital distribution, as the shareholder and debtor are one and the same. The most unusual case we have dealt with involved the distribution of antiques with some shareholders wanting specific assets.

When assets can’t be split easily

Difficulties can arise when there are multiple shareholders as each shareholder is entitled to a share of assets which is proportionate to their shareholding. If an asset cannot be split (if for whatever reason joint ownership going forward is not feasible) then the distributions need to be equalised with, perhaps, the other shareholder(s) receiving more cash in lieu of not receiving the other asset. It is therefore important to anticipate situations like this to avoid having to sell assets or shareholders having to inject further funds. Shareholders should obtain tax advice on the valuation applied to assets when transferred.

When considering office equipment and other low value assets the impact is likely to be minimal however HMRC may prefer properties, for example, being valued for distribution purposes.

At the end of an MVL we account to shareholders for their distributions and distributions in specie are treated exactly the same as cash distributions at that stage.

If you have non cash assets and are not sure what to do with them when your company closes, seek advice and, in most occasions, an easy solution is available.

How we can help

The experienced team at Johnston Carmichael are on hand to help and advise you through this process. Get in touch with me or another member of the Restructuring team for an initial, informal chat.

You can find out more about our ContractorMVL service, designed specifically for contractors, on our dedicated ContractorMVLs page.