Selling debts

Our client is a trading holding company. One of its wholly owned subsidiaries was placed in insolvent liquidation several months ago. The subsidiary has a few large third-party trade debtor balances that it is unlikely to recover even in part.

The liquidator wishes to write these debts off however the directors of the holding company are convinced they would be able to collect some of the debts in part. As a result the liquidator has agreed to ‘sell’ the trade debts at a fair value.

My query concerns the holding company’s treatment of the acquired debts. If it turns out that the debts cannot be recovered how would the loss be relieved? Would it be a capital loss a trading loss or a non-trading loan relationship debit?

Any suggestions would be welcome.

Query 17 996 – Lost

Reply from A.N.A.

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