Section 286ZA | The risk-to-capital requirement ^F1

(1)The requirement of this section is that, having regard to all the circumstances existing at the time of the issue of the relevant holding, it would be reasonable to conclude that—

(a)the relevant company has objectives to grow and develop its trade in the long-term, and

(b)there is a significant risk that, for the investing company, there will be a loss of capital of an amount greater than its net investment return.

(2)For the purposes of subsection (1)(b)—

(a)the reference to a loss of capital is to a loss of some or all of the amounts given in consideration for the relevant holding, and

(b)the reference to the net investment return is to the net investment return to the investing company irrespective of whether the return takes the form of income, capital growth, fees or other payments or anything else.

(3)For the purposes of subsection (1) the circumstances to which regard may be had include—

(a)the extent to which the company's objectives include increasing the number of its employees or the turnover of its trade,

(b)the nature of the company's sources of income, including the extent to which there is a significant risk of the company not receiving some or all of the income,

(c)the extent to which the company has or is likely to have assets, or is or could become a party to arrangements for acquiring assets, that could be used to secure financing from any person,

(d)the extent to which the activities of the company are sub-contracted to persons who are not connected with it,

(e)the nature of the company's ownership structure or management structure, including the extent to which others participate in or devise the structure,

(f)how any opportunity for investment in the company is marketed, and

(g)the extent to which arrangements are in place under which opportunities for investments in the company are or may be marketed with, or otherwise associated with, opportunities for investments in other companies or entities.

(4)If the relevant company is a parent company—

(a)any reference in this section to the company's trade is to what would be the trade of the group if the activities of the group companies taken together were regarded as one trade, and

(b)any reference in subsection (3)(a) to (e) to the company is to any group company.