Originally Posted by Ackers Caffer
would it be considered normal business practice say, for a Company to be tranferring money (like about £3m say)
Yes, quite common where the company loaning the cash can afford it.
to other 'companies' in it's group, therefore leaving it with little or no working capital and not being able pay its creditors or pay it's employees (on time at least)
Nope.
but pay its shareholders/directors a huge (over £1M say) dividend?
Doesn't quite work like that (or shouldn't within the Companies Act).
There could be one of two scenarios - Company A (a holding company) takes a loan from Company B (the subsidiary). This is just a cash transaction and recognised as a debtor in Company B and a creditor in Company A. It does not impact upon the Profit and Loss account. It is illegal to pay dividends to shareholders unless there is enough profit to cover that dividend.
The second situation is where Company A charges Company B a "management fee". This is quite normal within many holding & subsidiary company relationship as long as the management fee is representative of some genuine cross company charges. In this situation, Company A may make a profit and could pay dividends.
However, where Company A charges large fees for not much service, the HMR&C tends to get very excited as it is a way of creating tax losses in one company to be offset against other profits. Get it right, and you reduce your tax bill.
Yes, an auditor would also get quite excited which may be why the statutory accounts are 7 months late. A receiver/liquidator would also be delving as deep as they can in the circumstances and may well report company fraud to BIS (was BERR, was DTI, was Board of Trade).
theloudone, I wouldn't worry about other peoples' motives for posting here - not worth the bother.
Cheers
Whirls