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Part 6 | |
Company reorganisations | |
Company reorganisations: introduction | |
39 (1) This Part applies in connection with company reorganisations. | |
(2) For the purposes of this Part there is a “company reorganisation” where a | 5 |
company (“the acquiring company”)— | |
(a) obtains control of a company whose shares are subject to an | |
outstanding qualifying option— | |
(i) as a result of making a general offer to acquire the whole of | |
the issued share capital of that company which is made on a | 10 |
condition such that, if it is met, the person making the offer | |
will have control of the company, or | |
(ii) as a result of making a general offer to acquire all the shares | |
in the company which are of the same class as those to which | |
the option relates; | 15 |
(b) obtains control of such a company as a result of a compromise or | |
arrangement sanctioned by the court under— | |
(i) section 425 of the Companies Act 1985 (c. 6) (power to | |
compromise with creditors and members), or | |
(ii) Article 418 of the Companies (Northern Ireland) Order 1986 | 20 |
(corresponding provision for Northern Ireland); | |
(c) becomes bound or entitled under— | |
(i) sections 428 to 430 of that Act (power to acquire shares of | |
shareholders dissenting from schemes or contract approved | |
by majority), or | 25 |
(ii) Articles 421 to 423 of that Order (corresponding provision for | |
Northern Ireland), | |
to acquire shares of the same class as shares that are subject to an | |
outstanding qualifying option; or | |
(d) obtains all the shares of a company whose shares are subject to an | 30 |
outstanding qualifying option as a result of a qualifying exchange of | |
shares (see paragraph 40). | |
(3) In sub-paragraph (2) “outstanding qualifying option” means a qualifying | |
option that has yet to be exercised. | |
Meaning of “qualifying exchange of shares” | 35 |
40 (1) For the purposes of the EMI code there is a “qualifying exchange of shares” | |
where— | |
(a) arrangements are made in accordance with which a company (“the | |
new company”) acquires all the shares (“old shares”) in another | |
company (“the old company”), and | 40 |
(b) the following conditions are met. | |
(2) The conditions are that— | |
(a) the consideration for the old shares consists wholly of the issue of | |
shares (“new shares”) in the new company; | |
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(b) new shares are issued in consideration of old shares only at times | |
when there are no issued shares in the new company other than— | |
(i) subscriber shares, and | |
(ii) new shares previously issued in consideration of old shares; | |
(c) the consideration for new shares of each description consists wholly | 5 |
of old shares of the corresponding description; | |
(d) new shares of each description are issued to holders of old shares of | |
the corresponding description in respect of, and in proportion to, | |
their holdings; and | |
(e) by virtue of the CGT capital reorganisation provisions, the exchange | 10 |
of shares is not treated as involving a disposal of the old shares or an | |
acquisition of the new shares. | |
(3) For the purposes of this paragraph old shares and new shares are of a | |
corresponding description if, on the assumption that they were shares in the | |
same company, they would be of the same class and carry the same rights. | 15 |
(4) In this paragraph— | |
(a) references to “shares”, except in the expression “subscriber shares”, | |
include securities; and | |
(b) “the CGT capital reorganisation provisions” means section 127 of | |
TCGA 1992, as applied by section 135(3) of that Act (exchange of | 20 |
securities). | |
Grant of replacement option | |
41 (1) This paragraph applies if both of the following conditions are met in | |
connection with a company reorganisation. | |
(2) The first condition is that the holder of a qualifying option, by agreement | 25 |
with the acquiring company, releases the holder’s rights under that option | |
(“the old option”) in consideration of the granting to him of rights (“the new | |
option”) which are equivalent but relate to shares in the acquiring company. | |
(3) The second condition is that the requirements of the following paragraphs | |
are met— | 30 |
paragraph 42 (period within which replacement option must be | |
granted), and | |
paragraph 43 (further requirements to be met as to replacement | |
option). | |
(4) If this paragraph applies, the new option is to be treated for the purposes of | 35 |
the EMI code as a “replacement option”. | |
(5) Except where the contrary is indicated— | |
(a) references in the EMI code to a qualifying option include a | |
replacement option, and | |
(b) a replacement option is to be treated for the purposes of the EMI code | 40 |
as if it had been granted on the date on which the old option was | |
granted. | |
(6) For the purposes of any of paragraphs 5 to 7 or section 536(1)(e), the total | |
value of the shares in the acquiring company that are subject to the | |
replacement option is to be taken to be equal to— | 45 |
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(a) the total value (as calculated in accordance with paragraph 5(6) to | |
(8)) of the shares that were subject to the old option immediately | |
before the release of rights under that option, or | |
(b) if the replacement option has been partially exercised, the proportion | |
of that total value which corresponds to the proportion which the | 5 |
number of shares that remain subject to the option bears to the | |
number of shares that were subject to it at the time when it was | |
granted as a new option (see sub-paragraph (2) above). | |
(7) In the EMI code references to “the old option” or “the new option” are to be | |
construed in accordance with this paragraph. | 10 |
Period within which replacement option must be granted | |
42 (1) To qualify as a replacement option the new option must be granted within | |
the required period (see sub-paragraphs (2) to (4)). | |
(2) If the company reorganisation falls within paragraph 39(2)(a), the required | |
period is the period of 6 months after the date on which— | 15 |
(a) the person making the offer has obtained control of the company, | |
and | |
(b) any condition subject to which the offer is made is met. | |
(3) If the company reorganisation falls within paragraph 39(2)(b) or (d), the | |
required period is the period of 6 months after the date on which the | 20 |
acquiring company obtains control of the company whose shares are subject | |
to the old option. | |
(4) If the company reorganisation falls within paragraph 39(2)(c), the required | |
period is the period during which the acquiring company remains bound or | |
entitled as mentioned in that provision. | 25 |
Further requirements to be met as to replacement option | |
43 (1) For the new option to qualify as a replacement option the following | |
requirements must also be met. | |
(2) The new option must be granted to the holder of the old option by reason of | |
the holder’s employment— | 30 |
(a) with the acquiring company, or | |
(b) if that company is a parent company, with that company or another | |
member of the group. | |
(3) The requirements of— | |
(a) paragraph 4 (purpose of granting option), | 35 |
(b) paragraph 7 (maximum value of options in respect of relevant | |
company) (as it has effect under sub-paragraph (4)), and | |
(c) Part 5 (requirements as to options), | |
must be met in relation to the new option at the time of the release of rights | |
under the old option (“the relevant time”). | 40 |
(4) For the purposes of paragraph 7 (as applied by sub-paragraph (3)(b)) the | |
total value of the shares in the acquiring company that are subject to the new | |
option is to be taken to be equal to the total value (as calculated in | |
accordance with paragraph 5(6) to (8)) of the shares that were subject to the | |
old option immediately before the relevant time. | 45 |
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(5) In addition to the requirements mentioned in sub-paragraph (3)— | |
(a) the independence requirement and the trading activities | |
requirement must be met in relation to the acquiring company at the | |
relevant time, and | |
(b) the individual to whom the new option is granted must be an eligible | 5 |
employee in relation to the acquiring company at that time. | |
(6) The total market value, immediately before the relevant time, of the shares | |
which were subject to the old option must be equal to the total market value, | |
immediately after the grant of the new option, of the shares in respect of | |
which that option is granted. | 10 |
(7) The total amount payable by the employee for the acquisition of the shares | |
under the new option must be equal to the total amount that would have | |
been payable for the acquisition of shares under the old option. | |
Part 7 | |
Notification of option to Inland Revenue | 15 |
Notice of option to be given to Inland Revenue | |
44 (1) For a share option to be a qualifying option, notice of the option must be | |
given to the Inland Revenue within 92 days after the date of the grant of the | |
option. | |
(2) The notice must— | 20 |
(a) be given by the employer company, and | |
(b) be in a form required or authorised by the Inland Revenue. | |
(3) The notice must contain, or be supported by, such information as the Inland | |
Revenue may require for the purpose of determining whether the | |
requirements of this Schedule are met. | 25 |
(4) The notice must also contain a declaration within each of sub-paragraphs (5) | |
and (6). | |
(5) A declaration within this sub-paragraph is a declaration by a director, or the | |
secretary, of the employer company— | |
(a) that in the opinion of that person the requirements of this Schedule | 30 |
are met in relation to the option, and | |
(b) that the information provided is, to the best of that person’s | |
knowledge, correct and complete. | |
(6) A declaration within this sub-paragraph is a declaration by the individual to | |
whom the option has been granted that the individual meets the | 35 |
requirement of paragraph 26 (commitment of working time) in relation to | |
the option. | |
(7) Any reference in this Part of this Schedule to the requirements (or any of the | |
requirements) of this Schedule being met in relation to a share option is a | |
reference to the requirements or requirement being met in relation to it at the | 40 |
appropriate time. | |
Correction of notice by Inland Revenue | |
45 (1) The Inland Revenue may amend a notice given under paragraph 44 so as to | |
correct obvious errors or omissions in the notice. | |
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(2) A correction under this paragraph must be made by a notice given to the | |
employer company. | |
(3) No correction may be made under this paragraph more than 9 months after | |
the day on which the notice under paragraph 44 was given to the Inland | |
Revenue. | 5 |
(4) A correction under this paragraph is of no effect if the employer company, | |
within 3 months after the date of issue of the notice of correction, gives notice | |
to the Inland Revenue rejecting the correction. | |
Notice of enquiry | |
46 (1) This paragraph applies where notice of a share option is given under | 10 |
paragraph 44. | |
(2) The Inland Revenue may enquire into the option if they give notice to the | |
employer company of their intention to do so in accordance with this | |
paragraph. | |
(3) The Inland Revenue may enquire into whether the requirement of | 15 |
paragraph 26 (commitment of working time) is met in relation to the option | |
by the individual to whom it has been granted if they give that individual | |
notice of their intention to do so in accordance with this paragraph. | |
(4) The Inland Revenue must give a copy of a notice under sub-paragraph (3) to | |
the employer company. | 20 |
(5) Unless given by virtue of sub-paragraph (6), a notice of enquiry may not be | |
given more than 12 months after the end of the period of 92 days mentioned | |
in paragraph 44(1) (the period within which a notice under that paragraph | |
must be given). | |
(6) A notice of enquiry may be given at any time if the Inland Revenue discover | 25 |
that any of the information provided in or in connection with the notice | |
under paragraph 44 was false or misleading in a material respect. | |
(7) An option that has been the subject of one notice of enquiry under sub- | |
paragraph (2) or (3) may not be the subject of another notice under that sub- | |
paragraph, unless the notice is given by virtue of sub-paragraph (6). | 30 |
(8) In this paragraph a “notice of enquiry” means a notice given under sub- | |
paragraph (2) or (3). | |
Completion of enquiry: closure notices | |
47 (1) An enquiry under paragraph 46(2) is completed when the Inland Revenue | |
give the employer company a notice— | 35 |
(a) informing the company that they have completed their enquiry, and | |
(b) stating their decision as to whether the requirements of this Schedule | |
are met in relation to the option. | |
(2) If the Inland Revenue conclude that the requirements of this Schedule are | |
not so met, they must also give notice of that decision to the person to whom | 40 |
the option has been granted. | |
(3) An enquiry under paragraph 46(3) is completed when the Inland Revenue | |
give the individual concerned and the employer company a notice— | |
(a) informing the recipients that they have completed their enquiry, and | |
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(b) stating their decision as to whether the requirement of paragraph 26 | |
(commitment of working time) is met by that individual in relation | |
to the option. | |
(4) References in the EMI code to a “closure notice” are to a notice under sub- | |
paragraph (1) or (3). | 5 |
(5) A closure notice takes effect when it is issued. | |
Completion of enquiry: application for closure notice to be given | |
48 (1) An application may be made under this paragraph for a direction requiring | |
the Inland Revenue to give a closure notice within a specified period. | |
(2) The application may be made— | 10 |
(a) by the employer company, or | |
(b) in a case within paragraph 46(3), by the individual concerned. | |
(3) The application must be made— | |
(a) to the General Commissioners, or | |
(b) if the applicant so elects (in accordance with section 46(1) of TMA | 15 |
1970), to the Special Commissioners. | |
(4) The Commissioners hearing the application must hear and determine it in | |
the same way as an appeal. | |
(5) Those Commissioners must give a direction unless they are satisfied that the | |
Inland Revenue have reasonable grounds for not giving a closure notice | 20 |
within a specified period. | |
Effect of enquiry | |
49 (1) If the Inland Revenue do not give a notice of enquiry, the requirements of | |
this Schedule are taken to be met in relation to the option. | |
(2) If the Inland Revenue do give a notice of enquiry, their decision stated in the | 25 |
closure notice is conclusive as to whether the requirements of this Schedule | |
are met in relation to the option. | |
(3) But this is subject— | |
(a) if their decision is that the requirements are not met, to the outcome | |
of any appeal against that decision under paragraph 50; | 30 |
(b) if their decision is that the requirements are met, to the outcome of | |
any subsequent enquiry under paragraph 46(6) (enquiry arising | |
from discovery of false or misleading information). | |
(4) This paragraph does not affect the provisions of sections 532 to 539 (which | |
relate to disqualifying events). | 35 |
Appeals | |
50 (1) The employer company may appeal against a decision of the Inland | |
Revenue— | |
(a) that notice of the grant of the option was not given in accordance | |
with paragraph 44, or | 40 |
(b) that the requirements of this Schedule are not met in relation to the | |
option. | |
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(2) An individual may appeal against a decision of the Inland Revenue that the | |
individual does not meet the requirement of paragraph 26 (commitment of | |
working time). | |
(3) Notice of the appeal must be given to the Inland Revenue within 30 days | |
after the date when the closure notice is given to the appellant. | 5 |
(4) The appeal lies— | |
(a) to the General Commissioners, or | |
(b) if the employer company or individual so elects (in accordance with | |
section 46(1) of TMA 1970), to the Special Commissioners. | |
Part 8 | 10 |
Supplementary provisions | |
Power to require information | |
51 (1) The Inland Revenue may by notice require a person to provide them with | |
information— | |
(a) which they reasonably require for the performance of their functions | 15 |
under the EMI code, and | |
(b) which the person to whom the notice is addressed has or can | |
reasonably obtain. | |
(2) The power conferred by this paragraph extends, in particular, to information | |
to enable the Inland Revenue— | 20 |
(a) to decide whether a share option is a qualifying option, or | |
(b) to determine the liability to tax, including capital gains tax, of any | |
person who has been granted a qualifying option. | |
(3) The notice must require the information to be provided within a specified | |
period, which must not end earlier than 3 months after the date when the | 25 |
notice is given. | |
Annual returns | |
52 (1) A company whose shares are subject to a qualifying option at any time | |
during a tax year must deliver a return to the Inland Revenue. | |
(2) The return must— | 30 |
(a) contain such information as the Inland Revenue may require, and | |
(b) be made before 7th July in the tax year following that to which it | |
relates. | |
Compliance with time limits | |
53 (1) For the purposes of this Part and Part 7 a person is not to be regarded as | 35 |
having failed to do anything required to be done within a particular period | |
of time if— | |
(a) the person had a reasonable excuse for not doing it within that | |
period, and | |
(b) if the excuse ceased to exist, the person did it without unreasonable | 40 |
delay after the excuse ceased to exist. | |
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