tax debt and a new company

nacho66

Hi guys

I have a question regarding tax debt and an example scenario.
Let say person X is an owner of company A. Company A has a tax debt (owes money to revenue).
Now, same person X starts a new company (B) and co-owns it with person Y (they both have 50% share)

On such a scenario, what's going on with that tax debt that company A has. Is it carried over somehow on a new company? Does it follow person X?

ResearchWill

nacho66 wrote: »

Hi guys

I have a question regarding tax debt and an example scenario.
Let say person X is an owner of company A. Company A has a tax debt (owes money to revenue).
Now, same person X starts a new company (B) and co-owns it with person Y (they both have 50% share)

On such a scenario, what's going on with that tax debt that company A has. Is it carried over somehow on a new company? Does it follow person X?

I assume by company you mean a limited liability company then simple answer is no.

But if revenue believes there is a fraud they may try to go after the owner director of company A in his personal capacity. Also if co company A is not paying it's debts there in nothing stoping the director of corporate enforcement trying to have the directors restricted as acting as directors.

Mr. Incognito

There are tax provisions against Phoenix companies where a company is wound up with liabilities and a new company opened that has the same assets and aims as the old company.

You would need to see a professional to see if this applies-

Of course this is all hypothetical

nacho66

What about investors that would want tocome into company B? Let say a third person, person Z, would get 10% of the company B. Is there any risk that person Z could be at any stage involved in person's X debt?

Mr. Incognito

This is going to sound like specific advice and I'm wary but as a general over view not to be relied upon there are two issues.

One is a legal issue and one is a tax issue.

Putting my legal cap on first,

There are obligations under the companies acts for company directors to behave appropriately. Running up debts and burning creditors and trading recklessly can see you disbarred from running a company for periods varying on what section of the companies acts you are disbarred under. In such a scenario you are barred from becoming a company director. These applications can be brought by liquidators, creditors and employees in some limited cases.

Secondly, from a tax perspective, if you run up a company, burn the creditors and re-open a new company, the new company may be deemed to assume the liabilites of the old. A new investor is effectively assuming the historical debts of the first but would not suffer the personal liabilities that the first directors may be open to under the companies acts unless he or she knew about them and became an accomplace.

These are all technical issues that depend on the facts of the case in question and there is no hard and fast rule.