My son has just returned home after several years working in London, where we thought he was doing well. But it turns out he had been launching various companies, most of which were subsequently struck off – probably for failing to file accounts. For five or six years, he filed no tax returns, employee records or VAT registrations, so he has absolutely no paperwork. How do we start in trying to get him back into the real world and what are the likely penalties? Can you tell what kind of tax investigation will follow and whether it is likely that a single payment, provided by me, could solve all the problems? Or, if he goes bankrupt will the taxman – or anyone else – be able to grab the funds he will receive eventually under my will?
You are rightly concerned and should take professional advice quickly, once the facts are established. Check whether your son was a director or others acted on his instructions, deeming him to have been a “shadow director”.
I also suggest that you find out the reasons for the companies being struck off. A lack of records is worrying. Directors must ensure that company records are properly kept. Failure to do so can lead to disqualification as a director, or being involved in any way in company management.
If any of the companies were insolvent, there is a greater risk of an inquiry and claim against your son. This could be made by a liquidator for the benefit of all the company’s creditors – not just particular creditors, such as HM Revenue & Customs (HMRC) – no matter who instigates the inquiry.
In your lifetime, there can be no claim against assets you intend to bequeath him. However, given his history, consider setting up a trust, rather than leaving money directly in his hands. If he is made bankrupt, any inheritance will only be at risk if he receives it while he is undischarged (or within three years if it is treated as income).
Co-operative bankrupts are usually discharged within 12 months. If your son has consistently failed to pay tax, HMRC might seek to pursue him for tax evasion or to start bankruptcy proceedings. He may (under advice) consider approaching HMRC directly with a proposal – but I agree that you should be wary of dealing with one problem in isolation.
Carolyn Jones is a partner and heads the insolvency, corporate recovery and restructuring team at Matthew Arnold & Baldwin, a law firm
Can I sell up but stay on?
I own and run a successful technology manufacturing business, which I set up 10 years ago. I employ 70 people and have a turnover in the tens of millions. I am now looking to sell the business and have been approached by several high-profile software and IT manufacturing businesses. I would like to retain a small stake and stay on in a management position, but most of the companies are only offering a full sale and earn-out period. Is there a way I can ensure the buyout contains a clause to allow me to stay on with the company and retain a small stake?
Such clauses are quite common, but you will need to persuade the buyers to agree to their inclusion. Be mindful that any buyers may be resistant to your having a continuing presence in the business. Even if they are in favour, they will worry about your ability to adjust to a diminished role.
Are you sure you’re not just being sentimental? Or, if you really can’t bear to let go, could it be that you’re not ready to sell?
If your objectives are to protect your earn-out and participate in any future upside, you will need to negotiate a continuing role and an equity stake (probably in the parent). You will need to argue that you can ease the transition to the new owner and add value in the longer term – to the acquiring group as a whole, not just the business you’ve sold.
Any arrangements will need to be structured to avoid incurring unnecessary tax.
However, the big challenge will be convincing buyers that this is good for them, not just for you. They may demand a reduction in the initial price as a quid pro quo.
Matthew Duggan is a consultant solicitor at Keystone Law, a law firm
Can I withhold my tenant’s freehold?
I own and run an estate in Kent which makes a good income from shooting activities, letting agricultural land and renting out a large house as well as several smaller cottages. Recently, one of the tenants approached me about buying the freehold of the house. However, I am not keen to sell as I get a very good rental income from this property which helps my cash flow. Am I allowed to decline the purchase for these reasons, or do I need to take other action?
At this stage, you can decline the offer without giving reasons. However, you should consider whether any tenants have a statutory right to buy their freeholds.
They will only have this right if they have a lease that was granted for more than 21 years and they have held the lease for at least two years. If the property constitutes a house (ie there is a clear vertical division between it and other properties), then they could claim the freehold. If not, they could claim a 90-year extension to their current lease term and reduce any ground rent to a peppercorn.
As the house is within a rural estate, there may be some exceptions that you can rely on to prevent a sale. For example, a tenant will not have the right to buy the freehold of a house if itis within an agricultural holding, is held under a tenancy to which the Agricultural Holdings Act 1986 applies, or is within a farm business tenancy. Nor will the right exist where the freehold of a house is owned together with adjoining land that is not occupied for residential purposes. This land need not be immediately next to the house – a claim could be defeated on the basis that the neighbouring land around the house is used for agricultural purposes.
If your tenant proves he has the right to buy the freehold of the house – and if none of these exceptions apply – you will be obliged to sell to him. However, you will receive a compensatory premium.
Rosie McCormick Paice is a partner at Pemberton Greenish, a law firm
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