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162 | Meaning of “normal commercial loan” |
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(1) | For the purposes of sections 158(1)(b) and 159(4)(b) “normal commercial loan” |
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(a) | which is of or includes new consideration, and |
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(b) | in relation to which each of conditions A to D is met. |
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(2) | Condition A is that the loan does not carry any right to conversion into shares |
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or securities other than a right to conversion into— |
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(a) | shares to which section 164(1) applies, |
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(b) | securities to which section 164(2) applies, or |
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(c) | shares or securities in the relevant company’s quoted parent company |
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(see section 164(3) to (7)). |
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(3) | Condition B is that the loan does not carry any right to the acquisition of shares |
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(4) | Condition C is that the loan does not entitle the loan creditor to any amount by |
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(a) | depends to any extent on the results of the relevant company’s business |
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or on the results of any part of that business, |
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(b) | depends to any extent on the value of any of the relevant company’s |
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(c) | exceeds a reasonable commercial return on the new consideration lent. |
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| This subsection needs to be read with section 163. |
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(5) | Condition D is that the loan is a loan in relation to which the loan creditor is |
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entitled, on repayment, to an amount which— |
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(a) | does not exceed the new consideration lent, or |
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(b) | is reasonably comparable with the amount generally repayable (in |
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relation to an equal amount of new consideration) under the terms of |
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issue of securities listed on a recognised stock exchange. |
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163 | Normal commercial loans: company’s results or value of assets |
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(1) | Interest is not within section 162(4)(a) by reason only that the terms of the loan |
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provide for the rate of interest— |
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(a) | to be reduced if the results of the relevant company’s business or any |
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part of the business improve, or |
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(b) | to be increased if such results worsen. |
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(2) | Interest is not within section 162(4)(b) by reason only that the terms of the loan |
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provide for the rate of interest— |
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(a) | to be reduced if the value of any of the relevant company’s assets |
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(b) | to be increased if the value of any such assets decreases. |
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(3) | Subsection (4) applies if— |
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(a) | a loan is made to the relevant company for the purpose of facilitating |
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(b) | the loan is made on the basis mentioned in subsection (5), and |
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(c) | none of the land that the loan is used to acquire is acquired with a view |
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(4) | Interest on the loan is not within section 162(4)(b) by reason only that the terms |
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of the loan are such that the only way the loan creditor can enforce payment of |
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an amount due is by exercising rights granted by way of security over the land |
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that the loan is used to acquire. |
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(5) | The basis referred to in subsection (3)(b) is that— |
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(a) | the whole of the loan is to be applied in the acquisition of land by the |
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relevant company or in meeting incidental costs incurred wholly and |
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exclusively for the purpose of obtaining the loan or providing security |
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(b) | the payment of any amount due in connection with the loan to the |
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person making it is to be secured on the land that the loan is used to |
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(c) | no other security is to be required for the payment of any such amount. |
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(6) | “Incidental costs” means expenditure on fees, commissions, advertising, |
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printing or other incidental matters. |
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164 | Sections 160 and 162: supplementary |
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(1) | This subsection applies to any shares— |
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(a) | in relation to which conditions A, C, D and E in section 160 are met, and |
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(b) | which do not carry any rights to conversion into shares or securities |
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other than rights to conversion into shares or securities in the relevant |
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company’s quoted parent company (see subsections (3) to (6)). |
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(2) | This subsection applies to any securities— |
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(a) | which represent a loan of or including new consideration, |
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(b) | in relation to which conditions B, C and D in section 162 are met, and |
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(c) | which do not carry any rights to conversion into shares or securities |
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other than rights to conversion into shares or securities in the relevant |
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company’s quoted parent company. |
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(3) | For the purposes of this section and sections 160 and 162 a company (“the |
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candidate company”) is the relevant company’s quoted parent company if |
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(a) | the relevant company is a 75% subsidiary of the candidate company, |
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(b) | the candidate company is not a 75% subsidiary of any company, and |
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(c) | the candidate company’s ordinary shares are listed on a recognised |
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(4) | If the candidate company’s ordinary share capital is divided into two or more |
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classes, subsection (3)(c) is met only if its ordinary shares of each class are listed |
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on a recognised stock exchange. |
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(5) | In subsections (3) and (4) “ordinary shares” means shares forming part of |
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(6) | Subsection (7) applies if, in determining under subsection (3)(a) whether the |
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relevant company is a 75% subsidiary of the candidate company, it is necessary |
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to know, for the purposes of subsection (1)(b) or (2)(c) or section 160(4)(c) or |
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162(2)(c), whether the candidate company is the relevant company’s quoted |
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(7) | It is to be assumed for those purposes that the candidate company is the |
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relevant company’s quoted parent company. |
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Company’s entitlement to profits or assets available for distribution: basic provisions |
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165 | Proportion of profits available for distribution to which company is entitled |
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(1) | This section applies for the purpose of determining the proportion to which a |
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company (“company A”) is, at any time, beneficially entitled of any profits |
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available for distribution to the equity holders of another company (“company |
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(2) | The proportion is the proportion to which company A would, at that time, be |
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beneficially entitled on a distribution in money to the equity holders of |
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company B (“the profit distribution”) of— |
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(a) | an amount of profits equal to company B’s total profits of the relevant |
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accounting period (see section 168), or |
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(b) | if there are no such total profits, profits of £100. |
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(3) | It does not matter for the purposes of subsection (2) if any of company B’s total |
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profits are not actually distributed. |
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(4) | If company B is non-UK resident, company B’s total profits are to be calculated |
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as if it were UK resident. |
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(5) | For the purposes of the profit distribution, it is to be assumed that no payment |
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is made by way of repayment of share capital or of the principal secured by any |
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loan unless that payment is a distribution. |
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(6) | Subject to subsection (5), if an equity holder is entitled as such to a payment |
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which (apart from this subsection) would not be a distribution, the equity |
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holder is nevertheless to be treated as entitled to the payment on the profit |
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166 | Proportion of assets available for distribution to which company is entitled |
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(1) | This section applies for the purpose of determining the proportion to which a |
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company (“company A”) would, at any time, be beneficially entitled of any |
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assets available for distribution to the equity holders of another company |
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(“company B”) on a winding up. |
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(2) | The proportion is the proportion to which company A would, at that time, be |
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beneficially entitled if company B were to be wound up and on that winding |
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up (“the notional winding up”) the value of assets available for distribution to |
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company B’s equity holders were equal to— |
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(a) | the assets amount minus the liabilities amount, or |
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(b) | if the assets amount does not exceed the liabilities amount or if |
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company B’s balance sheet is prepared to a date other than the end of |
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the relevant accounting period (see section 168), £100. |
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(3) | The “assets amount” is the amount of company B’s assets as shown in its |
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balance sheet as at the end of the relevant accounting period. |
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(4) | The “liabilities amount” is the amount of company B’s liabilities as shown in |
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that balance sheet but excluding liabilities to equity holders as such. |
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(5) | If, on the notional winding up, an equity holder would be entitled as such to |
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an amount of assets which (apart from this subsection) would not be a |
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distribution of assets, the equity holder is nevertheless treated as entitled to the |
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amount on the distribution of assets on the notional winding up. |
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(6) | Subsection (7) applies if— |
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(a) | an equity holder (“E”) of company B provided new consideration for |
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any shares or securities in company B in relation to which E is an equity |
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(b) | company B makes a loan to E or any person connected with E or |
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acquires shares or securities in E or any person so connected, and |
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(c) | in making that loan or acquiring those shares or securities, company B |
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applies, directly or indirectly, an amount (“the returned amount”) |
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corresponding to the whole or any part of the new consideration. |
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(7) | The following amounts are to be reduced by the returned amount— |
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(a) | the assets amount, and |
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(b) | the amount of assets to which E is beneficially entitled on the notional |
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167 | Profits or assets available for distribution and entitlement: supplementary |
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(1) | References to profits or assets available for distribution to equity holders of a |
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company do not include references to any profits or assets available for |
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distribution to any equity holder otherwise than as an equity holder. |
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(2) | References to a company being beneficially entitled to profits or assets are |
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references to the company being so entitled— |
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(b) | through another company or other companies, or |
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(c) | partly directly and partly through another company or other |
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(3) | If a person is an equity holder in relation to shares or securities as a result of |
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section 159, that person (and no other) is to be treated as being beneficially |
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entitled to any distribution of profits or assets attributable to those shares or |
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168 | Meaning of “the relevant accounting period” |
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(1) | For the purpose of determining the proportion of profits or assets to which |
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company A would be beneficially entitled as mentioned in section 165(2) or |
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166(2) at any time, “the relevant accounting period” is the accounting period of |
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company B in which that time falls. |
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(2) | If company B is non-UK resident and is not within the charge to corporation |
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tax, the relevant accounting period is to be determined using the assumption |
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(3) | The assumption is that company B became UK resident (and, therefore, within |
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the charge to corporation tax) at the time it became a 75% subsidiary (as |
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mentioned in section 136) ignoring section 151(4). |
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