Section 686 | Excluded circumstances: fundamental change of ownership

(1)Circumstances are excluded by this section if—

(a)immediately before the transaction in securities (or the first of the transactions in securities) the party holds shares or an interest in shares in the close company, and

(b)there is a fundamental change of ownership of the close company.

(2)There is a fundamental change of ownership of the close company if, as a result of the transaction or transactions in securities, the condition in subsection (3) is met.

(3)The condition in this subsection is that the original shareholder or original shareholders taken together with any associate or associates—

(a)do not directly or indirectly hold more than 25% of the ordinary share capital of the close company,

(b)do not directly or indirectly hold shares in the close company carrying an entitlement to more than 25% of the distributions which may be made by the close company, and

(c)do not directly or indirectly hold shares in the close company carrying more than 25% of the total voting rights in the close company.

(4)In this section “original shareholder” means a person who, immediately before the transaction in securities (or the first of the transactions in securities), held any ordinary share capital of the close company.

(5)For the purposes of this section, shares of or share capital in the close company which are held by a person controlled by an original shareholder, or by two or more original shareholders taken together, count as shares or share capital held by that original shareholder or those original shareholders.