Liquidation questionnaire: are two companies associated?

[Taiosa]

Company 1 had three share holders each with 33%. It started voluntary insolvency in April and formally listed on companies house in May.

Company 2 has 2 share holders, each with 50% holdings. 2 of these shareholders were shareholders of Company 1.

Company 2, is a 'Phoenix' company, it took over the clients of Company 1 and purchased assets from the liquidator. It was formed end of March.

I am no longer a part of Company 1 or Company 2 but need to answer this question for the liquidator form, for Company 1.

Are there any connected or associated companies and / or subsidiaries and/or
partnerships/limited liability partnerships and/or businesses?

Where the definition of 'associated company' is:

If a group of two or more persons has control of each company, and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating (in one or more cases) a member of either group as replaced by a person of whom he is an associate.

However I believe if the companies were not 'interdependent' then they are not associated e.g Company 1 and Company 2 didn't 'actually' have a transaction between each other. Although Company 2 purchased the assets of Company 1 through the liquidator.

However this link says they should be associated:

Two companies are financially interdependent if (in particular):

• one gives financial support (directly or indirectly) to the other, or
• each has a financial interest in the affairs of the same business.

In which case Company 1 did give financial support to Company 2 through purchase of liquidated assets (I think?). Company 2 I believe had financial interest, it took all the clients and took none of the debt.

Questions:

• Is Company 1 & 2 an associated company?
• Is purchase of Company 1's assets from Company 2 a transaction between the two companies? (Later the questionnaire asks if assets were sold. The two directors have just said assets were sold to employee's, negating the fact Company 2 also bought some).

 

[Frank Wessely]

Company 1 had three share holders each with 33%. It started voluntary insolvency in April and formally listed on companies house in May.

Company 2 has 2 share holders, each with 50% holdings. 2 of these shareholders were shareholders of Company 1.

Company 2, is a 'Phoenix' company, it took over the clients of Company 1 and purchased assets from the liquidator. It was formed end of March.

I am no longer a part of Company 1 or Company 2 but need to answer this question for the liquidator form, for Company 1.



Where the definition of 'associated company' is:



However I believe if the companies were not 'interdependent' then they are not associated e.g Company 1 and Company 2 didn't 'actually' have a transaction between each other. Although Company 2 purchased the assets of Company 1 through the liquidator.

However this link says they should be associated:

Two companies are financially interdependent if (in particular):


In which case Company 1 did give financial support to Company 2 through purchase of liquidated assets (I think?). Company 2 I believe had financial interest, it took all the clients and took none of the debt.

Questions:

• Is Company 1 & 2 an associated company?
• Is purchase of Company 1's assets from Company 2 a transaction between the two companies? (Later the questionnaire asks if assets were sold. The two directors have just said assets were sold to employee's, negating the fact Company 2 also bought some).

Hi Taiosa

1. Based upon your description I think that the 2 companies are associated due to common parties in control of the companies during the brief period between incorporation of company 2 and the liquidation of company 1.

2. The asset purchase is such a transaction but is not relevant as it took place after the winding up had commenced and was approved / conducted by the Liquidator. The Liquidator is only interested in these transactions which took place prior to the date of liquidation.

In the context of your narrative and specific questions I do not see any material concerns. However, there is another point. If company 2 has the same or a similar name to company 1 and the two shareholders are directors of both companies, then the restrictions on the reuse of company names will apply (S216 of the Insolvency Act 1986) for those two individuals. In this event, relief from these restrictions should have been obtained. If it wasn’t then the 2 common shareholders need to seek urgent legal advice as there could be risks personally for them.

I hope this is useful.

Thanks.

 

[Taiosa]

Thanks Frank for your helpful response I really appreciate it. Company 2 has a very different name to Company 1.

Does a 'transaction' count if Company 2 was emailing clients of Company 1 before the insolvency had 'officially' started? For the purpose of the questionnaire it would just need to be a transaction, I can see there was conflict of interest from the other directors doing so.

 

[Frank Wessely]

Thanks Frank for your helpful response I really appreciate it. Company 2 has a very different name to Company 1.

Does a 'transaction' count if Company 2 was emailing clients of Company 1 before the insolvency had 'officially' started? For the purpose of the questionnaire it would just need to be a transaction, I can see there was conflict of interest from the other directors doing so.

Hi Taiosa

I will need to know more of the context to be able to answer your question. If you can call me later on the number below we can discuss further.

Thanks.