Distribution in specie
Please bear in mind that we use a distribution in specie to save our client's money - and to also give them the peace of mind of holding their money in their bank account as opposed to ours.Julie Frost
In specie is a phrase describing the distribution of an asset as is, rather than selling it and distributing the cash proceeds. In specie distributions are made when cash is not readily available or if allocating the physical asset is a better alternative than distributing cash.
A distribution in specie in our Bronze MVL is a forgiveness of debt document - rather than pay us back it is simply saying don't pay us back and here's a piece of paper to confirm that you did it.
Distributions in specie have been allowed within the Companies Act for many years and are included within a company's Articles of Incorporation including Model Articles and Table A on the winding up of a company.
Distribution in Specie
With our Bronze Service MVL if the company’s articles of incorporation allow, or the company has passed an appropriate resolution we like to proceed with a distribution in specie. This means that we would ask you as shareholders to withdraw the cash on account and distribute it between shareholders in proportion to your shareholdings. In effect this cash withdrawal will represent shareholders loans which will become due and payable to the company upon request. Once appointed the liquidator will then declare a distribution in specie whereby he will allow each shareholder to have the debt that they owe the company thus writing off any liability they may have to the company. This means that there would be no requirement to repay the monies drawn from the bank account to the company.
- The transfer of funds takes place just prior to liquidation (usually a week) and should be done after all liabilities have been paid, including our fees. This allows the company to reclaim the VAT
- There is still a statutory requirement for a bond, but as this is a non cash MVL our insurer’s provide a 50% discount.
- The distribution in specie process for our Bronze Service MVL’s is not used for an overdrawn director’s loan account especially where section 455 tax would become payable.
- The distribution in specie is used upon our instruction, after we have verified the cash amount in the company bank account is the same as that on the company accounts, and this is the amount which is used also on the declaration of solvency. The purpose of using the distribution in specie is to allow shareholders to hold the money as opposed to us as Insolvency Practitioners holding the money in our client account.
Cash handling has a material effect on costs and if you would like to proceed with a Bronze MVL, whereby the capital in the company’s bank account is transferred to Frost Group’s client account and we then distribute this back to shareholders, the price will have to have an increased premium of £300 plus the additional bonding costs which will have to apply.
We have recently received enquiries from clients worried about the consequences of using a distribution in specie. The reason being an article easily found online, which has worried clients that HMRC might consider a distribution in specie as personal income rather than capital and affect their entitlement to entrepreneurs relief. The articles discuss HMRC trying to change the practice in relation to overdrawn director's loan account which an Insolvency Practitioner could distribute in specie. It also discusses a 'test case' although not named.
We advise that if you have an overdrawn director's loan account you should repay the money owed first, before progressing with a Bronze MVL. If you have any concerns please speak with your personal tax advisor or accountant, or we can put you in contact with one.
Please bear in mind that we use a distribution in specie to save our client's money - and to also give them the peace of mind of holding their money in their bank account as opposed to ours.
If you are considering a Members Voluntary Liquidation and would like to discuss your situation with an Insolvency Practitioner, we can be contacted on 0845 260 0101.
And finally, I I would like to draw your attention to Jeremy’s article - http://frostgroup.co.uk/members-voluntary-liquidation/directors-loan-accounts-and-income in which he discusses director’s loan accounts and income - definitely worth reading if you have been worried by some of the fear mongering about distributions in specie!