Transferring Assets - Conflict of interest???

BigFish75

Hi all,

Can anyone here give me some advice on how to go about extracting certain equipment assets from company A which I'm a shareholder and director in to to Company B? Company A isn't performing well so I'd like to take the opportunity to set up a new company which buys the key operating assets of comapny A and then wind down company A. Does that make sense? Company B will tread water for a while until the market improves and then use the assets acquired from comapny A to start trading. Comapany B will trade under a different trading name to company A.

I know as a director of company A I have an obligation to get the best price I can for the assets of the company but when I'm selling to myself (I'm 100% shareholder of company how do I determine the value company B has to pay company A for the assets? Are there any guidelines from the Revenue Commisisons I have to adhere to? Can I used the depreciated book value? Are there any valuers approved by the revenue or somehow qualifed to calculate the appropriate value? How much would they charge for to value 10 items? I know I could ask dealers what they think the value of the equipment is but what they'd be prepared to pay for it would be rock bottom in this market. Do I just pick a figure, do the transaction and hope for the best? What could the consequences be in terms of the Revenue Commisisoners or being struck off as a director of I get it wrong? Does my Accountant have to approve the transaction?

Lot's of questions I know but i haven't done this before so I really don't know what to do and I don't want to ask my Accountant until I have an idea of what the options are as my Accountant is a real "by the book" kind of fella and I know my fellow boardsies will have a practical solution to the problem!!

Regards,

Fish

J.Ryan

BigFish75 wrote: »

Hi all,

Can anyone here give me some advice on how to go about extracting certain equipment assets from company A which I'm a shareholder and director in to to Company B? Company A isn't performing well so I'd like to take the opportunity to set up a new company which buys the key operating assets of comapny A and then wind down company A. Does that make sense? Company B will tread water for a while until the market improves and then use the assets acquired from comapny A to start trading. Comapany B will trade under a different trading name to company A.

Will it be a liquidation or will it be a strike off. If its the former I can understand why your accountant would be like to go by the book. I'm assuming that it is the latter.

BigFish75 wrote: »

I know as a director of company A I have an obligation to get the best price I can for the assets of the company but when I'm selling to myself (I'm 100% shareholder of company how do I determine the value company B has to pay company A for the assets? Are there any guidelines from the Revenue Commisisons I have to adhere to? Can I used the depreciated book value? Are there any valuers approved by the revenue or somehow qualifed to calculate the appropriate value? How much would they charge for to value 10 items? I know I could ask dealers what they think the value of the equipment is but what they'd be prepared to pay for it would be rock bottom in this market. Do I just pick a figure, do the transaction and hope for the best? What could the consequences be in terms of the Revenue Commisisoners or being struck off as a director of I get it wrong? Does my Accountant have to approve the transaction?

1) You are not selling to yourself, you are selling to a company with common shareholding, this transaction would be a related party and would need to be disclosed on your financial statements

2) The directors are entitled to place any value on the assets of the company that they believe to be true, however it is possible that the revenue will contest the valuation, methords to value include (but are not limited to) the following
-review Buy & Sell/EBay or similar (depending on the asset type)
-compare what dealers are selling similar aged and conditioned equipment, it may be appropriate to discout this figure to reflect the dealers profit
-review the net book value of the assets (when you selected your depreciation rate and methord there had to be a reason)
-review the TWDV of the assets still attracting capital allowances

3) Assuming company A will continue to trade you could sale and leaseback the assets, company A pays a rent to company B for the use until the winding up, this may have CT consequences for company B, selling the assets may have CT consequences for company A

BigFish75 wrote: »

Lot's of questions I know but i haven't done this before so I really don't know what to do and I don't want to ask my Accountant until I have an idea of what the options are as my Accountant is a real "by the book" kind of fella and I know my fellow boardsies will have a practical solution to the problem!!

Regards,

Fish

There is nothing wrong with by the book and I'm sure that your accountant is advising in your best interests in the light of the information that (s)he has which would be a lot more than the information in the post.

BigFish75

Thanks J.Ryan,

Company A will be liquidated via a members voluntary liquidation with all creditors paid. I have two minor shareholders in company A (less than 20% between them) who are no longer working in the business and won't be involved in company B so I'm taking the opportunity to tidy things up and start company B with a clean slate so to speak.

Whilst I do want company B to pay as little as possible for the assets of comapny A I want to ensure the price paid meets two key criteria:-

1. The Revenue Commissioners won't have an issue with the price the assets are being 'sold' for
2. The two minority shareholders won't feel the assets are being sold at an unfair value as that could reduce the value of the surplus (not much) to be distributed amongst the shareholders.

I'm concerned that if I get into valuing the equipment myself I'll end up in a bun fight with the two lads who will natually want to see the assets sold for as high a value as possible.

Are there any specialist/independent valuation comapanies who would value the 10 items of equipment without costing an arm and a leg? It would be worth paying for the peace of mind to know the revenue won't question the transaction and the two lads won't be thinking I'm fleeceing them.

I take your point ref the Accountant. He's a good fella and I know his advice will keep me on the straight and narrow but before I go to him I'd like to have an idea of my options.

Thanks again for the response.

Fish

J.Ryan

I'm wondering if its a Members Voluntary Liquidation, why go to the expense of a liquidation, why not just buy the shares from the minority shareholders.

Or have the company purchase them and then cancel them, they would be liable for CGT on any gain the made regarding the sale of the shares.

Granted I may not be aware of all the facts but it seems like the simpler solution based on the information I have.

djk1000

J.Ryan wrote: »

I'm wondering if its a Members Voluntary Liquidation, why go to the expense of a liquidation, why not just buy the shares from the minority shareholders.

Or have the company purchase them and then cancel them, they would be liable for CGT on any gain the made regarding the sale of the shares.

Granted I may not be aware of all the facts but it seems like the simpler solution based on the information I have.

+1 on that. I'm not sure of your specific circumstances either, but it could be cheaper to buy out the shareholders than to go through a liquidation. As for your "by the book" accountant, what you are suggesting here really needs to be done by the book and your accountant will be able to give you the right advice as he knows the details.

BigFish75

Hi Lads,

Appreciate the suggestions ref buying out the other two boys but that's not an option I'm afraid. For other reasons I haven't elaborated on I want to liquidate company A and am really looking to understand what the correct process is or options are in relation to placing a "fair" (whatever that means!!) value on the assets company B will purchase from company A.

I searched revenue.ie but couldn't find anything specifiying how assets being sold between related companies should be valued, what standard of value has to be applied or what qualifications a 3rd party valuer needs to have to arrive at an independent value which the revenue won't question and the other two shareholders won't object to.

If anyone can shed some light on the specific issue of selling assets between related companies and/or point me in the direction of a qualified valuer who's value will be accepted by the revenue I'd really appreciate it.

Fish

BigFish75

Have I stumped everyone??? Any ideas at all would be greatly appreciated.

djk1000

You need to talk to an accountant and explain the "reasons" you won't go into. This is a complicated area, asset sales and director transactions in failing companies are being scrutinised like never before. Your best defense is to take proper advice, that advice can only be forthcoming if you put everything on the table. It's not a simple question with a simple answer, suitable for a message board TBH.

Sorry I couldn't be more help!

D

BigFish75

Hi DJK1000,

Thanks for the reply.

I can understand why you'd think it but I can assure you the business isn't failing. Myself and the two minority shareholders have grown apart and it's time to close one chapter and open another.

I know I need to get professional advice but I'd like to understand the basic rules/standards of value that apply when business assets are sold between related companies. Is there nowhere that the rules or guidance is written down? Do the revenue commissioners make the rules or the accounting bodies???

I'm not trying to use Boards as a substitute for professional advice at all. I will get the advice but I just thought this would be the right place to find out what the basic rules are and how the equipment should be valued and/or by who.

Perhaps I haven't articulated myself very well???

Fish