Liquidity Considerations

Are there any liquid assets?

• Assessment of the working capital requirements of the business
• Identification of surplus or investment assets such as investments, property and cash
• Ability to raise additional finance for example, through sale and leaseback of plant, stock loans, invoice discounting
• Assessment of the tax consequences of realising assets

Can those assets be extracted from the company?

• Do the other shareholders and stakeholders agree to the extractions?
• Does it impact on the directors fiduciary and statutory duties to the company and its creditors?
• Identification of available methods for extraction, for examples through directors’ loan accounts, dividends, bonuses, employee benefit trusts or sales of shares
• Assessment of the tax consequences of extracting funds from the company.

Methods of extraction, where cash is available

• Earnings
• Dividends if the company has sufficient distributable reserves
• Drawings, but if a partnership requires the agreement of all partners
• Repayment of director’s loans to a company
• Company lends money, but this incurs a tax charge
• Company buy back of own shares from departing shareholder