A distribution in specie is a type of asset distribution that allows investors to receive assets other than cash. For example, a company might offer stock options or shares of stock as part of a distribution in specie. This can be advantageous for investors because it allows them to receive assets that may have more value than cash.
It can also be disadvantageous because it can be more difficult to sell the assets received. Therefore, it is important to consider both the advantages and disadvantages of a distribution in specie before making an investment decision
What is a distribution in specie?
When a company is placed into liquidation, there are a number of different ways in which its assets can be distributed to creditors. One of these is known as distribution in specie. This is where the company’s assets are distributed to creditors in kind, rather than in cash.
This can be particularly useful where the company holds assets that would be difficult to sell, such as property or shares. It can also be used where the company’s assets are worth more than the amount of money owed to creditors.
In this case, it may be possible to reach an agreement with creditors whereby they accept a reduced sum of money in full and final settlement of their claims. However, distribution in specie is not without its risks, and it is important to seek professional advice before agreeing to any such arrangement.
Members’ Voluntary Liquidation and distribution in specie
Insolvency is a situation where an individual or company is unable to pay their debts. In the case of a company, this can often lead to the decision to wind up the business through a process known as Members’ Voluntary Liquidation (MVL).
An MVL can be an attractive option for shareholders as it allows them to receive a distribution in specie, which means they will receive their share of the company’s assets in kind rather than in cash. This can be particularly useful if the company holds valuable assets such as property or patents.
However, it is important to note that an MVL can only take place if the company is solvent, which means that it must have enough assets to cover its debts. If the company is insolvent, then it will need to go through a different process known as compulsory liquidation.
Overdrawn director’s loan accounts and distribution in specie
When a director has borrowed more cash from the company than they have paid in an overdrawn directors loan account (DLA) is generated.
DLA’s are distributed as an asset of the company. Should the director also be a shareholder with an overdrawn DLA they are effectively paying themselves back. This is an efficient way to make a repayment of the DLA as well as carry tax advantages.
HMRC have stated it is their intention to change the regulations that surround this procedure, so it is best to clarify this situation with an insolvency practitioner as to the status of this and how it might impact your business’ circumstances.
Failing to comply with the process and regulations could have negative tax implications.
Choosing the best course of action
Choosing the best course of action when opting for distribution in specie as opposed to in cash.
We would recommend that you make contact with an insolvency practitioner who will take the time to review your business’ particular situation and present a case for, or against, such a procedure.
Conclusion: Distribution in Specie
Assets that are transfers as “as is” within the distributions in specie can includes both physical and financial assets other than cash.
Members’ Voluntary Liquidation and overdrawn director’s loan accounts can an implementation in distributions in specie, but with so many regulations it is advisable to speak guidance from a licensed insolvency practitioner in order to seek a positive outcome.
For more information about business turnaround and insolvency solutions or further information on distribution in specie do get in touch for a no-obligation chat with one of our team members.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.