Surplus and deficit

We have recently been asked to act for two family-owned investment companies: one holds some commercial properties that are rented out; and the other holds a listed share portfolio.

The two companies are not grouped but are under common control by virtue of the same group of family shareholders (though no one individual controls both companies).

One of the two companies has a significant accumulated deficit on reserves that arose some years ago we think as a consequence of the cessation of its former trading operation; and the other company has a surplus of reserves.

The company with the deficit on reserves now generates some cash on an annual recurring basis.

Although it cannot itself pay a dividend due to the deficit the procedure that seems to have been adopted is for that company to simply lend whatever cash it has at its year-end to the...