UK Disposal of Company Assets / Shareholders Divorcing

[matt.kelly]

Morning. I just have a quick question to do with how a Company disposes of assets as a result of a divorce settlement of its two shareholders. The main facts are these:

1. Court Order issued December 2017 stating property owned by Company be transferred in to one shareholders name with a deadline for the transfer of 31 March 2018.
2. Year-end is 31 March 2018.
3. Transfer did not take place by that date and has not yet taken place at all.
4. That shareholder relinquished their shares in April 2018, although I do not necessarily see this as relevant.

What are my entries in the financial statements to 31 March 2018? I don't think the Company can show the asset on its SFP under FRS102 Asset Recognition, but what is the other side of that disposal? Dividend? Exceptional Expenditure?

Grateful for any guidance.

 

[Fidget]

I think the legal stuff needs to be understood before the accounting stuff can happen. The court order is to transfer title of the asset to a single shareholder, but that doesn't necessarily mean that it can't still be used by the business.

If it is still being used by the business, then it's the terms of that that decide the accounting treatment i.e a once owned asset becomes a leased asset.

If the gaining shareholder's idea is to take the asset out of the business, then it would involve a transfer of asset and would need written out of the company's books. The logical way to do that would be to treat it as any other disposal but disclose the nature of it in the notes to the accounts. Given that a court order is in place over it, it's difficult to see a way of not disclosing the nature of it.

In terms of all the dates, which are/aren't relevant will only be established once the true nature of what is going on has been established first.

 

[matt.kelly]

Thanks for the response.

All the economic benefits of the property (rent and usage) are passed to the shareholder as part of the same Order, so i'm comfortable enough that it should be disposed at that date, which happens to be 1 December 17.

My concern is I think the Company can only dispose of this by way of dividend, which gives rise to a few potentially unconsidered issues;
- Will each shareholder will receive an in-specie dividend of 50% of the value of the property, given that the shareholding was 50/50 when the Order was made, notwithstanding that they won't be 50/50 when the transfer of legal title is made.
- If a distribution of income, would the value of the disposal be the market value of the property at the disposal date (for Income Tax purposes, not CGT which has already been considered) or simply the base cost which is reflected in the accounts?
- If a distribution of income, that then presumably gives each shareholder a liability to Income Tax in 2017/18

I don't see how it can be anything other than a distribution of income as the Company has no real equity to speak of. (There are no loans as the shareholders wrote them off, share premiums, revaluation reserves - everything is derived from profits). Is there any scope at all to bypass a distribution of income here?