CG52723 | Company reconstructions: shareholder: partitions

Under Sch 5AA it is possible for the business of the original company to be divided and for the business to be transferred to other companies which issue shares to different groups of shareholders in the original company.

EXAMPLE

Buccaneer Holidays Ltd has one class of ordinary share capital. These are owned by Mr Williams and Mr Dampier. The company specialises in organising adventure holidays in the UK and overseas. Mr Williams concentrates on the UK business and Mr Dampier on the overseas business. There is some friction between them as to what part of the business should be expanded. They decide to go their separate ways.

The company enters into a scheme under Section 110 Insolvency Act 1986. As part of the scheme of reconstruction the share capital of Buccaneer Holidays Ltd is reorganised into A and B shares. Under paragraph 6 Sch 5AA the question of whether there is a scheme of reconstruction is considered after the reorganisation. The UK business is allocated to the A shares which are issued to Mr Williams. The overseas business is allocated to the B shares, which are issued to Mr Dampier. Buccaneer Holidays Ltd is placed into liquidation. The liquidator passes the assets and liabilities of the UK business to a new company, Swan Ltd, which issues ordinary shares to Mr Williams. The assets and liabilities of the overseas business pass to a new company, Cygnet Ltd, which issues ordinary shares to Mr Dampier.

The successor companies have issued ordinary shares to the appropriate class of ordinary share holder in the original company therefore the first condition of Sch 5AA is met.

Taking the activities of the successor companies as a whole, as they carry on the whole of the business of the original company, the 3rd condition of Sch 5AA is met. As indicated at CG52720 above, you can assume that the second condition of Schedule 5AA is met.

TCGA92/S136 applies to the shareholders’ disposal of their shares in Buccaneer Holidays Ltd and the issue of the shares in Swan Ltd and Cygnet Ltd. TCGA92/S139 applies to the transfer of the two businesses to Swan Ltd and Cygnet Ltd.