INTM559230 | Hybrids: imported mismatches (Chapter 11): conditions to be satisfied: condition C

Condition C of S259KA is that the imported mismatch arrangement is part of a series of arrangements.

A series of arrangements is defined at s259KA(5) as a number of arrangements where each arrangement is entered into in pursuance of, or in relation to, another arrangement (the over-arching arrangement).

A simple example of a series of arrangements might be

• a loan arrangement between X Co and Y Co (the X/Y Loan)

• a loan arrangement between Y Co and UK Co (the Y/UK Loan)

• the X/Y Loan directly or indirectly funds the Y/UK Loan

Over-arching arrangements and third-party borrowing

In considering condition C it will need to consider whether the arrangement under which the funding is provided is part of an ‘over-arching arrangement’ within the meaning of S259KA.

The company will generally be able to conclude that the arrangement under which the funding is provided is not part of an over-arching arrangement where

• the company borrows money under a straightforward loan agreement that has no features indicative of a hybrid financial instrument

• the borrowing is on normal commercial terms

• the only reason why the company and the person may be considered to be in the same control group is that the person has, or may have a 50% investment in the company by virtue of the loan

• the only relationship or connection between the company and the lender is that the company has borrowed money from the person, and

• the arrangement under which the funding is provided is not a structured arrangement within the meaning of Chapter 3