withdrawing funds from limited co. prior to liquidation

R

rabbit

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If a limited company goes in to voluntary liquidation / is wound up, can the revenue authorities "clawback" or go after any "gift" made by the director out to the limited company before the liquidation ?
For example, if the directors of the limited company ( lets assume there are only 2 directors, a husband + wife ) pay 50,000 to themselves, then liquidate the company ( lets assume there are no creditors other than Revenue ), can the Revenue go after tax due on the 50,000 ? A friend whose business has ceased trading , but who has funds / savings in the company, said he was thinking of doing this ; I told him I thought he probably would not get away with it.
Thanks in advance for any replies.
 
I think the liquidators appointed to wind up the company would have knowledge of the said gift and revenue will be due on this payment. but i suggest to speak with a professional financial adviser to be on the safe side
 
A company cannot give "preferential treatment" to its creditors prior to a liquidation. The liquidator would seek the return of that money, especially if it was paid to the directors or shareholders.

Brendan
 
Thats what I thought as well. However, suppose the liquidator did seek the return of that money and the ex directors said "sorry, I am not giving it to you or the revenue ; I have nothing more to do with the company ; I spent the money paying off a personal loan "...what then ?
Its an interesting question as I fear over the next year or two there may be quite a few businesses closing down.
 
If the directors withdrew money from the company and let it go into liquidation with outstanding creditors (Revenue), then they could be restricted as acting as directors for a period of time, they could be found guilty of fraudulent or reckless trading and, if the breach is egregious, the Revenue could sue to "lift the company veil" and come after the directors and/or shareholders directly. It also can carry a criminal penalty. Have a look for a blurb.

I'm not sure what you mean by the Revenue going after the tax due on the €50k directly though - tax in the hands of the directors? Or does the €50k itself equate to an amount due to revenue? If the latter, then I would strongly advise your buddy against it, for all manner of reasons, not least his potential exposure to liability.

Sprite
 
I don't really understand the question? Is it a members voluntary liquidation or a creditors voluntary liquidation? Who do they propose to be Liquidator?

The original post states it is a voluntary liquidation. The first step in a voluntary liquidation is a "declaration of solvency", or Form 12 which is attached to a statement of affairs (prepared by an Accountant, usually) which is sworn by the Directors in front of a Solicitor. It states that the company is solvent. Any tax liabilities would show up on the statement of affairs. A liquidator will examine the accounts/bank of a company fully before taking on a members voluntary liquidation. They are just not going to leave themselves exposed like that.

Part of a members voluntary liquidation is that there are funds there to pay all creditors and make a final distribution to the members (shareholders). To enable the Liquidator finalise the winding up, Revenue clearance is required. This will mean all tax returns will need to be brought up to date. If there is a PAYE/PRSI return outstanding, then the Revenue will not give clearance.

If the Directors pay themselves €50K then they will be owe PAYE/PRSI as opposed to 20% CGT on a distribution by the liquidator. There are other tax efficient ways of extracting funds without paying high rate PAYE/PRSI rates too.
 
What are the other tax compliant ways of getting funds out of the company without paying high PAYE/PRSI rates? I'm not sure where to look for this advice.

I have revenue left in the company, there are no creditors and all accounts are up to date. The company isn't really needed any longer (contract is up) and if I could wind it down and take redundancy or the like that might be ideal. I am sole shareholder and employee and am a director.
 
My accountant isn't sure so I'll try a tax consultant, thanks. MandaC mentioned extracting funds in his post above, which is why I ask here.
 
It's one for a tax consultant. There are various extraction methods available depending on how much is there for extraction. Though some can be expensive, and very specialised (tax consultants bill) and would only be worth looking at if there was a lot of cash built up in the Company.

PS. Was a woman last time I looked!!!
 
rabbit said:
Thats what I thought as well. However, suppose the liquidator did seek the return of that money and the ex directors said "sorry, I am not giving it to you or the revenue ; I have nothing more to do with the company ; I spent the money paying off a personal loan "...what then ?
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Do you really think that there is any serious chance of evading financial and legal duties with 'dog ate my homework' excuses?
 
There are specialist accountants out there that would give your buddy some guidance on this matter. They specialise in company close downs and are adept at reducing liabilities. The trick is to find one. The one I used was based in Kildare and was excellent.
 
Magunn said:
There are specialist accountants out there that would give your buddy some guidance on this matter. They specialise in company close downs and are adept at reducing liabilities. The trick is to find one. The one I used was based in Kildare and was excellent.
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Trouble is they sometimes give conflicting advice, and they charge very very well for such advice even if it later discovered not to be the best advice.
 
Complainer said:
Do you really think that there is any serious chance of evading financial and legal duties with 'dog ate my homework' excuses?
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It has nothing to do with "dog ate my homework' excuses. We were more wondering if the homework was handed to someone else, and the original ownrr of the homework ceased to exist, can the revenue do anything ? I told him I thought he probably would not get away with it...but as we all know there are probably far far larger amounts of money being written off all over the world as I write this.
 
If the company has funds and being voluntary would up, depending on certain circumstances the liquidator may distribute funds to the shareholders. These distrubitions are liable at 20% CGT.
 
There are also tax arrangements whereby funds can be extracted with no tax.

As regards different advices being given by Tax Consultants, it is all about how the legislation is interpreted by the Tax Consultant personally.

As regards charging very well, good tax advisors always will- if they are making considerable savings for the client, it is worth it.
 
MandaC said:
There are also tax arrangements whereby funds can be extracted with no tax.

As regards different advices being given by Tax Consultants, it is all about how the legislation is interpreted by the Tax Consultant personally.
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I was just chatting to him, he has gone to two accountants who said he will have to pay a considerable amount of tax to get the money out of the limited company, legally. Oh , plus a nice little fee for the accountant, nearly enough to buy a small car.
Should legislation on a relatively simple matter be so complicated - or is it not more a case of imcompetency on the part of some ?
 
It is not that people are incompetent. It is just that they are not specialists. There are firms which specialise in cash extractions/company reorganisations, a lot depends on the client's personal attitude to tax - it would certainly be deemed "agressive" tax planning, but it is perfectly legal. It would also only be for very high net worth clients with a lot of cash in the business.

In this particular case and without looking at exactly what is in the accounts - by going the route of members voluntary liquidation (tax at 20% distribution by a Liquidator), I would have thought that what most Accountants (even those who do not specialise in tax) would recommend.
 
MandaC said:
In this particular case and without looking at exactly what is in the accounts - by going the route of members voluntary liquidation (tax at 20% distribution by a Liquidator), I would have thought that what most Accountants (even those who do not specialise in tax) would recommend.
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Most definitely so, especially where there is significant capital within the company.
 
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