CTM80175 | Groups: group relief: arrangements, effect 2

CTA10/154(3) effect 2, CTA10/S1124

Effect 2 in CTA10/S154(3) is that there are arrangements in place of any kind (whether or not in writing) whereby:

• any person, other than the two companies concerned, has or could obtain, or

• any persons, other than the two companies concerned, together have or could obtain,

control of one of the companies but not of the other.

This is subject to exclusions for certain commercial arrangements as set out in CTA10/Ss155A and 155B (CTM80181), and to the definition of arrangements in CTA10/S156(2)(b) (CTM80165)

‘Control’

CTA10/S1124 does not define ‘control’ merely in terms of direct shareholdings and voting rights in the company concerned. A person or persons have S1124 control if they have power to secure that the affairs of the company are conducted in accordance their wishes. So you may have to consider:

• shareholdings and voting rights in any company, and also

• powers conferred by the documents regulating any company if these affect the ‘control’ situation.

So, to determine whether relevant arrangements exist, you will need to consider:

• the Memorandum and Articles of Association of the company (and any other document regulating the company or which could result in the affairs of the company being conducted in accordance with a particular persons wishes), and

• the various documents relating to loans made to the company.

Where a company other than the parent company holds shares, etc, you may also need to consider the shareholdings, etc, of that company.

Control at various levels

The ability to secure that the affairs of the company are conducted in accordance with a persons wishes includes consideration of how the business of the company as managed by its Board. Usually shareholders cannot dictate to or overrule the Board on management matters entrusted to the Board. So a necessary element of control is the ability to determine the composition of the Board, or failing that, to appoint directors who have the power to impose their decisions on directors appointed by any other shareholder.

The voting rights shareholders can exercise in general meetings will normally include the right to vote on the appointment and removal of directors. However, it is not safe to assume that possession of the majority of voting rights will bring automatic control of the Board. In Irving v Tesco Stores (Holdings) Ltd 58TC1, the claimant did not have Boardroom control of the surrendering company because:

• more than half of the directors were to be appointed by the minority shareholder and could not be removed without his consent, and

• the directors appointed by the claimant could not impose their decision on the directors appointed by the minority shareholder.