Changing trading entities once in a while for asset protection

So say I have a company, A Pty Ltd, that sells widgets and has been doing so quite successfully for a few years. Over time it amasses equity because the rate at which A Pty Ltd pays me and my wife PAYG is not fast enough to get rid of retained profits. I've been trying to think of ways to protect this equity, and some of you may remember my previous threads asking about transferring this money to a different company in the form of 'consultant fees' but in the end I concluded PSI rules ruin that plan.

Now another idea came to me. What if, say every 5 years or so, I swap the business over to a new entity So, after 5 years, A Pty Ltd is a little fat and prime target for litigation, I change all our invoices / letterheads / contract boilerplates etc over so it's now B Pty Ltd t/as Widgets'r'us. Then I can keep A as a nice non-trading piggy bank that just holds ETFs and acts like a bucket company. So in case someone sues our business, it's against B Pty Ltd which is relatively new and only has maybe 1-2 years of retained profits at risk.

I repeat this every once in a while. Can I do that?

 

Yes this is a often used strategy, but it can be a hassle changing contracts, bank accounts, accounting etc.

Also you need to consider whether there are any CGT and stamp duty issues if something is being transferred - such as good will.
It will also potentially be an undermarket value transfer - subject to clawback under s 120 or 121 bankrupcy act

 

Pay fully franked dividends and lend the money back under an agreement that gives you security eg a fixed and floating charge

 

The goal is simply to get money out of the "potential litigation target" trading company - so no need to lend back anything. If I'm paying dividends, I may as well transfer the shares of this trading co to a new holding co. Hmmm. In this case - some new questions - would the holding co still be suable? Would holding co hold franking credits that it can then pass on to the ultimate shareholders / beneficiaries? Any expiration dates on franking credits held by a pty ltd? I know... I need professional advice... but this is sort of my preliminary DD

 

I trading company can pay out the profits in many ways
- contracts
- wages
- dividends

The quicker the profits are removed from the company the safer they will be, considering the clawback provisions. It can also help if they are not director related transactions.

But this doesn't stop the trading company from being sued for something that occurred in the past.

There was a legal case a few years ago where a lawyer was sued for something that happened about 10 years ago, but he had retired in the meantime and therefore didn't have PI insurance - the run off cover didn't cover him and the limitations act time limit will still alive so he wasn't covered.